U.K. August Home Prices Plunge the Most in 25 Years

By Jennifer Ryan

Sept. 4 (Bloomberg) -- U.K. house prices plunged at the fastest annual pace in at least a quarter century in August as banks withheld finance for new homes and consumers lost confidence in the economy, HBOS Plc said.

The average cost of a home dropped 12.7 percent to 174,178 pounds ($311,000) from the same month a year earlier, Britain's largest mortgage lender said in a statement today. That's the biggest drop since the series started in 1983. On the month, prices declined 1.8 percent.

The housing slump threatens to push the country into its first recession since the early 1990s and Prime Minister Gordon Brown this week suspended a tax on some property purchases in an attempt to revive the market. While the fastest inflation in more than a decade will probably keep the Bank of England from cutting interest rates today, the economic downturn may force them to act later this year.

``There's still downward pressure on the market,'' said Martin Ellis, chief economist at HBOS, in an interview. ``There's pressure from household finances and the economy slowing down. Though we're not expecting a cut from the Bank of England today, there is likely to be something before the end of the year.''

The Bank of England will keep its benchmark rate at 5 percent today, said all 61 economists in a Bloomberg News survey. The decision is scheduled for 12 p.m. in London. The pound, which has dropped 10 percent against the dollar in the past month, was little changed at $1.7821 at 9:46 a.m.

Housing Package

Prospects for house prices may be worsening. U.K. lenders approved 33,000 mortgages in July, the least since 1999, the central bank said Sept. 1. The Bank for International Settlements said on the same day that strains in money markets, which have disrupted the supply of U.K. home loans, may persist for ``some time.''


Brown is trying to turn around his political fortunes by propping up house prices. The government on Sept. 2 announced relief from so-called stamp duty on properties costing less than 175,000 pounds, and also said it would help people struggling to make mortgage payments.

Former Bank of England policy maker Willem Buiter said yesterday the measures had ``no macroeconomic significance.''

``News that house prices are still falling close to 2 percent on a monthly basis and the expectation of further declines is likely to be an important factor limiting the scope for a quick recovery'' in house prices, said Allan Monks, an economist at JPMorgan Chase & Co. in London.

U.K. consumer confidence held at a four-year low in August, Nationwide Building Society said yesterday. A separate survey of purchasing managers by the Chartered Institute of Purchasing and Supply showed services business from banks to airlines contracted for a fourth month, though the reading unexpectedly improved from July.

The Bank of England held the key rate at 5 percent since April after inflation climbed to 4.4 percent in July as oil and food prices surged. The central bank's target is 2 percent.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net