U.K. House Prices Decline Most Since at Least 2002

By Svenja O'Donnell

Aug. 18 (Bloomberg) -- U.K. house prices posted the biggest annual decline since at least 2002 as banks choked off mortgage lending, deepening London's property slump, Rightmove Plc said.

The average asking price for a home fell 4.8 percent in August from a year earlier to 229,816 pounds ($426,929), Britain's most-used property Web site said in a statement today. On the month, home values dropped 2.3 percent, the most since December, led by London.

``The lack of mortgage finance is central to the problem,'' Miles Shipside, commercial director of Rightmove, said in the statement. ``London, in particular, appears to be having its own special summer sale, with over 21,000 pounds off in a month.''

Bank of England Governor Mervyn King said last week that the housing market faces ``a significant adjustment'' as banks ration loans for homebuyers. Falling prices may exacerbate the economic slowdown as the threat of a recession looms and unemployment rises the most in 16 years.

The pound traded at $1.8663 against the dollar at 8:43 a.m. in London, from 1.8623 yesterday, the currency's first gain in 12 days. Against the euro, it was little changed at 78.89 pence.

Prices in London fell 5.3 percent on the month and 3.8 percent from a year earlier. Each of the 32 districts in the capital showed a decline, and the biggest drop was in the southwest area of Wandsworth, where values fell 7.9 percent. Hackney, in east London, was the best performer, with a 0.6 percent decline.

Market `Standstill'

The stock of unsold property per real estate agent rose for a seventh month to 78, from 77 in July. The number of transactions may reach the lowest since 1959, Rightmove said.

Banks have starved the market of loans after more than $500 billion in losses and writedowns worldwide from the U.S. mortgage market collapse. U.K. mortgage approvals fell to the lowest since at least 1999 in June, the Bank of England said July 29. The Royal Institution of Chartered Surveyors said last week that the housing market is at a ``virtual standstill.''

King said on Aug. 13 that ``there is a feeling of chill in the economic air'' and that ``the British economy is going through a difficult and painful adjustment'' that ``cannot be avoided.''

Weakness in the housing market may ``amplify'' the impact of the lending squeeze on household spending, the central bank said last week. Retail sales probably fell for a second month in July, dropping 0.2 percent, according to the median forecast of 32 economists in a Bloomberg News survey. The government's statistics office will release that data on Aug. 21.

Company Confidence

Britain's gross domestic product will either stagnate or contract in the next two or three quarters, meaning the economy may fall into a recession, the British Chambers of Commerce said in forecasts released today.

Confidence on business prospects fell to the lowest level in at least 6 years, according to a survey of more than 200 companies released by Lloyds TSB Group Plc today. The index of sentiment on the next 12 months fell to 22 in July, the lowest since the survey began in 2002, from 32 in June.

The economy probably grew 0.1 percent in the second quarter, less than previously estimated and matching the slowest pace since the aftermath of the last recession in 1992, the median forecast of 34 economists surveyed by Bloomberg News shows. The statistics office will publish the figures on Aug. 22.

The central bank kept its benchmark interest rate at 5 percent on Aug. 7 for a fourth month, as policy makers weighed the risk of accelerating inflation against the threat of a recession. Minutes of their meeting, showing how the panel voted, will be released on Aug. 20.

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