U.K. October House Prices Drop Most in 25 Years

By Brian Swint

Nov. 6 (Bloomberg) -- U.K. house prices fell at the fastest pace in at least 25 years, strengthening the case for the Bank of England to lower interest rates today, HBOS Plc said.

The average cost of a home dropped 14.9 percent from a year earlier in October, the most since the index began in 1983, Britain's largest mortgage lender said in a statement. From September, prices fell 2.2 percent, the ninth straight monthly decline.

The seizure in credit markets has left Britain on the brink of its first recession since 1991. The economy contracted in the third quarter and unemployment increased to the highest level in almost two years in September. The U.K. central bank will lower the key rate by at least half a point today, economists say.

``The market will remain under pressure going into a severe economic downturn,'' Martin Ellis, chief economist at HBOS, said in an interview. ``Interest rate reductions will help to improve confidence. I wouldn't be surprise to see a big one today.''

The U.K. economy shrank 0.5 percent in the three months through October, the National Institute of Economic and Social Research said in a separate report today. The European Commission forecast this week that the U.K. will contract 1 percent in 2009, the most among leading industrial nations.

U.K. house prices, which tripled in a decade, will fall 30 percent from their October 2007 peak over three years, Fitch Ratings said yesterday. U.K. mortgage approvals stayed close to the lowest since at least 1999 in September after the worsening financial crisis prompted banks to tighten lending and deterred potential buyers, the central bank said Oct. 29.

Rate Cuts

The average house price in the three months through October was 13.7 percent lower than a year earlier, also the steepest decline in a quarter century, HBOS said. At 168,031 pounds ($268,000), prices are now at the same level as in October 2005.

The Bank of England cut the benchmark lending rate by a half point on Oct. 8 in an emergency move with six other central banks.

It will probably lower it by the same amount today to 4 percent, said 45 of the 60 economists in a Bloomberg News survey. Nine predict a cut of 1 percentage point and six said the bank will reduce by 75 basis points. The central bank announces the decision at noon.

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