U.K. House Prices Fall as Sales Drop to Record Low

By Svenja O'Donnell
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Sept. 9 (Bloomberg) -- U.K. house prices dropped in August as the squeeze on mortgage lending pushed down sales to a record low, the Royal Institution of Chartered Surveyors said.

The number of real-estate agents and surveyors saying prices fell exceeded those reporting gains by 81 percentage points, compared with 83 percentage points in July, the group said today in London. Average sales per respondent in the past three months fell to 12.7, the least since the survey began in 1978.

``A lack of mortgage liquidity is the key issue which is keeping the housing market from showing any real sign of recovery,'' Jeremy Leaf, a spokesman for RICS, said in a statement. ``While money is scarce, many will continue to be denied the next step on the property ladder.''

The housing-market slump has helped stall the economy and threatens to push it into a recession, prompting Prime Minister Gordon Brown's government to propose measures last week to spur home-buying. Bank of England policy makers kept the main interest rate at 5 percent for a fifth month on Sept. 4, as inflation risks prevented them from cutting borrowing costs to bolster growth.

All 12 regions tracked by RICS showed negative balances on the month, led by Yorkshire and Humberside and the East Midlands. Both had readings of minus 95, before adjusting for seasonal swings. London had a reading of minus 70, making it the best- performing region.

`Serious' Correction

``We are in the middle of quite a serious housing-market correction,'' said former Bank of England policy maker DeAnne Julius in an interview with BBC radio's Today program. Prices ``will probably have to fall further,'' said Julius, who was a member of the bank's rate-setting board from 1997 to 2001.

The average house price fell 12.7 percent from a year earlier in August to 174,178 pounds ($306,000), HBOS Plc, Britain's biggest mortgage lender, said on Sept. 4. The annual drop was the biggest in at least a quarter-century.

Redrow Plc, the U.K. homebuilder with the lowest average selling price, said today it had a second-half loss of 163.2 million pounds after writing down the value of its land and work in progress.

Real-estate professionals remain pessimistic about the housing market, the RICS report shows. The balance of agents predicting sales will fall further was minus 8, from minus 5 the previous month. Some respondents said they had sold less than one home per week.

`Bad News'

``The market continues to be depressed with continuous bad news from banks, the economy,'' said Richard Cotton, an estate agent at Cluttons in London's exclusive Hyde Park district. ``Where is the market going? Down.''

U.K. mortgage approvals fell for a 12th month to the lowest since at least 1999, the Bank of England said Sept. 1. Banks granted 33,000 loans for house purchase, the fewest since comparable data began nine years ago. The value of mortgage lending fell 54 percent in July from a year earlier to 7.1 billion pounds, the Council of Mortgage lenders said today.

Brown's government suspended stamp-duty tax on homes bought for less than 175,000 pounds last week and said it will bring forward spending to help spur the property market.

The housing slump has hurt consumer spending. Sales in U.K. shops open at least a year fell an annual 1 percent in August, the British Retail Consortium, which represents 80 percent of stores, said in a separate report today. Clothing, footwear, furniture and household goods led the drop.

Gross domestic product was unchanged in the second quarter from the first three months of the year, ending the nation's longest stretch of economic growth in more than a century.

The central bank predicted in August that the economy will grow about 0.1 percent on a year-on-year basis in the first quarter of 2009, while inflation will reach 5 percent, the fastest pace since at least 1997.

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