U.K. Nationwide House Prices Fell Most Since 1991 in February

By Jennifer Ryan

Feb. 26 (Bloomberg) -- U.K. home values fell the most in at least 18 years in February as the recession deepened and banks withheld mortgage finance, Nationwide Building Society said.

The average house price fell an annual 17.6 percent to 147,746 pounds ($211,000), the biggest drop since monthly data began in 1991, the mortgage lender said in a statement today. Home values fell 1.8 percent on the month.

Chancellor of the Exchequer Alistair Darling is preparing to underwrite banks’ toxic assets to spur lending. Bank of England policy maker David Blanchflower said yesterday officials may need to do more to avoid a “protracted recession” after the bank cut the key rate to a record low of 1 percent. The U.K. economy shrank the most since 1980 in the fourth quarter.

“It is too early to say that the market has reached its trough,” Fionnuala Earley, chief economist at Nationwide, said in the statement. “There is unlikely to be a swift turnaround in the housing market in 2009.”

Darling wrote in a letter to the Financial Times yesterday that banks must “clean up” balance sheets and restructure their operations. He and Prime Minister Gordon Brown are angry that firms are still rationing credit after the government provided 37 billion pounds of cash to support Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc.

The chancellor is due to reveal details of the asset protection program, which will underwrite potentially bad loans.

‘Protracted Recession’

“The risks of a protracted recession are clearly evident,” Blanchflower said in a speech at the University of Stirling in Scotland yesterday. “It is possible further action may be necessary to bolster confidence in our financial institutions.”

Mortgage approvals fell 43 percent from a year earlier in January, the British Bankers Association said earlier this week. Banks granted 23,376 loans for house purchase, the group said.

Central bank policy makers unanimously agreed this month to ask the government for permission to pump money directly into the economy now that interest rates are the lowest since the bank was founded in 1694.

A separate report today by property Web site findaproperty.com showed the number of rental properties listed rose 43 percent in the last six months, pushing average rents down an annual 4.8 percent.

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