U.K. Hometrack House Prices Fall the Most Since 2001

By Brian Swint

July 28 (Bloomberg) -- U.K. house values fell by the most in at least seven years in July and the property slump will continue for months, Hometrack Ltd. said.

The average cost of a residential property in England and Wales slipped 4.4 percent from a year earlier to 168,500 pounds ($336,000), the London-based research company said today in a statement. That's the biggest annual drop since the index started seven years ago. Prices fell 1.2 percent from June.

``With no immediate end in sight to the current uncertainty, activity levels are likely to remain suppressed with prices remaining under pressure into the autumn,'' said Richard Donnell, director of research at Hometrack, in an e-mailed statement. Prices ``are now back to levels last seen in October 2006.''

Banks have raised mortgage rates and limited the supply of credit, reversing a decade-long property boom in which prices tripled. The Bank of England kept the benchmark interest rate at 5 percent this month on concerns that inflation is accelerating even as the economy risks slipping into a recession.

The pound fell after today's report to $1.9873 from $1.9906 on July 25. Against the euro, it fell to 0.3 percent 79.25 pence as of 11:24 a.m. in London.

U.K. house prices fell 1 percent in June, the biggest monthly drop since records began in 2000, the Land Registry said today in a separate report. The declines were led by London, where property values fell 2.5 percent, the report said.

Hometrack said the majority of house-price declines were in southern England. Demand for housing has declined 20 percent in the past three months.

Forecast for Rebound

A shortage of housing supply will still drive prices up by 25 percent by 2013, the National Housing Federation said today, citing research by Oxford Economics. Average home values will drop 4.4 percent this year and 2.1 percent in 2009 before they start rising again, the group, which represents 1300 housing associations in England, said on its Web site.

Central bank policy makers said this month that the housing downturn has ``gathered momentum,'' minutes of their monthly meeting showed last week. The Monetary Policy Committee split three ways in its interest-rate vote. Timothy Besley favored an increase to help stem the fastest in inflation in a decade and David Blanchflower supported a cut to ease the economic slowdown.

Britain's economy grew 0.2 percent in the second quarter, matching the slowest pace since 2001. Unemployment jumped the most in June since the aftermath of the last recession in 1992 as homebuilders and banks cut jobs.

Loan Approvals

Banks are curbing lending following the collapse of the U.S. subprime mortgage market, which so far has cost financial institutions worldwide $469 billion in writedowns and losses. U.K. mortgage approvals slumped in June to the lowest level in at least a decade, according to the British Bankers' Association.

Demand for farmland also declined for the first time since 2005 in the first half of the year, the Royal Institution of Charted Surveyors said in a separate report today.

The deteriorating economic outlook has contributed to the pound's 12 percent decline against a currency basket of Britain's main trading partners, making exports cheaper for overseas buyers.

The weaker pound ``won't prevent the credit crunch, a major housing downturn and a sharp retrenchment in corporate spending from sending the economy into recession,'' Roger Bootle, chief economic adviser to Deloitte & Touche LLP in London, wrote in a report published yesterday.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.