U.K. House-Price Drops Stay Close to Most Widespread Since 1978

By Svenja O'Donnell

July 15 (Bloomberg) -- U.K. house-price declines in June stayed close to the most widespread since the Royal Institution of Chartered Surveyors started measuring the property market in 1978, pushing the country closer to a recession.

The number of residential property agents and surveyors saying prices fell exceeded those reporting gains by 88 percentage points, the London-based group said today. That compares with 92.2 percent the previous month, and 94.2 in April, the worst since the series began. The reading for London prices was minus 80.

U.K. mortgage approvals fell to the lowest in at least nine years in May, and the nation faces a house-price drop which is ``probably very sharp,'' Bank of England policy maker Kate Barker said in a newspaper interview published yesterday. Accelerating inflation has prevented the central bank from cutting interest rates from the current 5 percent to avoid a recession.

``With demand so low, would-be buyers are negotiating from a position of strength,'' Jeremy Leaf, a spokesman for RICS, said in a statement. ``However, transaction levels remain incredibly low, with many buyers cut out of the process by tight lending conditions.''

Banks are curbing lending following the collapse of the U.S. subprime mortgage market, which so far has cost financial institutions worldwide $410 billion in losses and writedowns. They granted 42,000 loans for house purchase in May, the least since the Bank of England's series began in 1999.

Price Declines

The ratio of completed sales compared to the stock of unsold properties fell to 18.2 percent in June, the least since October 1995, RICS said. House prices in East Anglia and the East and West Midlands had the most widespread declines, the survey showed. Home values in Scotland were the least affected.

``The difficulty of obtaining finance and the cost, combined with a lack of confidence and negative news, has created a stagnant market with very little activity and very few buyers,'' said Richard Cotton, an estate agent at Cluttons in London's Kensington and Chelsea district.

HBOS Plc, the U.K.'s biggest mortgage lender, said last week that house prices fell in June from a year earlier by the most in 15 years. Homebuilders Redrow Plc and Bovis Homes Group Plc said on July 9 they will each cut their workforce by 40 percent after the housing slump wiped out sales.

Consumer spending is also showing signs of weakening. Retail sales in shops open at least a year fell 0.4 percent in June compared with a year ago, the British Retail Consortium said today. The BRC's director general, Stephen Robertson, said in a Bloomberg Television interview that the current environment was ``perhaps even as tough a market as the 1970s.''

The downturn comes as the Bank of England faces the worst inflation threat in a generation. Consumer prices probably rose 3.6 percent in June from a year earlier, according to the median forecast of 36 economists surveyed by Bloomberg. The Office for National Statistics will release the figures at 9:30 a.m. today.

To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net.