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House prices down 1.5% in past three months

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Date: Friday 28 Mar 2008

LONDON (ShareCast) - House prices continued to slide in March, with annual inflation at its lowest for 12 years prompting building society Nationwide to predict interest cuts sooner rather than later.

Prices fell by 0.6% in March, Nationwide said, the fifth month running its survey has shown a fall and taking the average UK house price down to £179,110. The annual rate fell to 1.1%, down from 2.7% in February, and the lowest rate since March 1996.

The society said it now expects to see an overall decline in prices in 2008 compared with its previous estimate of a flat year, though the estimate is still within its forecast range.

"A clear change in sentiment since the late summer has led to the sharp slowing in house price growth, prices are now 1.5% lower than three months ago," Nationwide chief economist Fionnuala Earley said.

Early also predicted an early cut in interest rates to help ease the liquidity problems in the mortgage and banking markets.

"The collapse of Bear Stearns and the fallout from false rumours of problems in a major UK bank may have helped to shift the focus of the monetary policy committee (MPC) to the need to loosen conditions in the financial markets," she said.

"Expectations of higher house prices will have undoubtedly encouraged some speculative demand in the housing market over the years. But with lower house price growth expected now and in the future, the effect will work the other way, causing at least some of this demand to fall away," she added.

Yesterday, Nationwide lifted the rate on its tracker mortgages by over half a percent and withdrew other products to better control its lending. The society will now charge borrowers 7.1% for its two-year tracker, an increase of 0.57%.

The society said it was putting up the cost of its loans because it was having to pay more to borrow the money from other lenders in the financial markets. The interbank rate or Libor climbed yesterday to 6.00375%, its highest level since December.