U.K. House Prices Will Decline 10% Next Year, Rightmove Says

By Svenja O’Donnell and Brian Swint

Dec. 15 (Bloomberg) -- U.K. house prices extended declines in December and will drop a further 10 percent next year as the recession batters the British economy, Rightmove Plc said.

The average price advertised by sellers fell 2.3 percent on the month to 217,808 pounds ($325,993), the operator of the U.K.’s biggest residential property Web site said today. Asking prices have dropped more than 10 percent from the peak in May and will fall by the same amount next year, Rightmove said.

“It’s tough out there,” Miles Shipside, commercial director at Rightmove, said in an interview on Bloomberg Television. “The market will be affected by the unemployment that’s coming. While it’s sad, we do need to reach the bottom, and that will probably happen in 2009.”

The dearth of loans is threatening to exacerbate the recession and has helped push home sales down to the lowest level since at least 1978. More than half of U.K. consumers plan to cut back on spending as they endure a squeeze on their finances, a survey by the Bank of England showed today.

On the year, asking prices have fallen 6.3 percent, while sale prices are now typically about 25 percent below the peak, the report said. Rightmove forecast in December 2007 house prices would stagnate this year.

In London, prices declined 5.1 percent on the year and rose 0.4 percent on the month. Homes in Wales have shed the most value this year, declining 13.4 percent, followed by the East Midlands, where prices dropped 12.8 percent.

Confidence ‘Low’

“There’s limited mortgage finance,” Shipside said. “Confidence is still at a low.”

Banks approved just 32,000 mortgages in October, matching the least since 1999. Real-estate agents and surveyors sold an average of 10.6 homes in the quarter through November, the least since the series began three decades ago, the Royal Institution of Chartered Surveyors said on Dec. 9.

While Britons expect credit to become less available, only 3 percent have fallen behind on payments, the central bank said today, citing a survey of more than 2,000 households conducted between Sept. 19 and Oct. 2. Nearly one in six households said they had postponed purchases on concern that they may be unable to access credit when they need it.

Only 4 percent of homeowners with a mortgage have fallen into negative equity, where the value of the loan is greater than the property. That’s a lower percentage than in 1995, the central bank said.

Investment Drop

Housing investment may fall in coming quarters, reflecting previous declines in home values, other research by the central bank showed. It said that surveys show construction companies expect prices of new homes to drop further in the next year.

Prime Minister Gordon Brown said on Dec. 12 that the government is working on the “second stage” of a rescue program for financial institutions to restore the flow of credit to the economy. Banks remain reluctant to offer loans even after tapping into a 50 billion-pound rescue to bolster their capital.

Britain’s economy contracted 0.5 percent in the third quarter, and the Bank of England predicts it will shrink next year. U.K. policy makers cut the key rate by a percentage point to 2 percent on Dec. 4, following a 1.5 percentage-point reduction the previous month.

To contact the reporters on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net; Brian Swint in London at bswint@bloomberg.net.