House prices fell by another 1.3 per cent in September, lowering the average price to £172,108, close to where it was in January, 2006.
Britain’s biggest mortgage lender, Halifax, said that taking the latest three months together, prices are now down 12.4 per cent year on year, the sharpest fall since it started compiling this index in 1983.
Martin Ellis, Halifax’s chief economist, pointed out that this was the smallest monthly fall since February.
“The overall decrease in the three months to September was very similar to that in the previous quarter, indicating that the trend rate of decline may be beginning to stabilise,” he added.
“The on-going pressures on householders’ income, combined with the reduction in the availability of mortgage finance, however, mean that market conditions will remain challenging.”
The decline means that the average house was costing 5.02 average annual earnings this July, down from a peak multiple of 5.84 in July last year and the lowest level for four-and-a-half years.
But that was still well above the long-term average of four years’ earnings.
The average interest rate paid by existing borrowers has fallen only slightly to 5.83 per cent in August from 5.91 per cent in August, 2007 – although Wednesday’s half-point cut in the Bank of England’s official rate, passed on speedily by several mortgage lenders, should lower this and provide some much-needed support for the housing market.
“We will continue to see downward pressure on prices for a while yet, but [Tuesday's] rate cut is going to be a significant boost to borrowers,” Mr Ellis said. “The pressure is going to remain through the rest of this year and a lot of next year.”
The average mortgage rate paid by new borrowers has risen to 6.1 per cent from 5.88 per cent over the year to August, despite cuts of 0.75 per cent by the Bank of England, reflecting the credit crunch
Howard Archer, UK economist at the consultants Global Insight, commented “House prices seem poised to fall substantially further as the fundamentals remain largely negative.
“Credit conditions remain extremely tight and this continues to exert upward pressure on many mortgage rates and limit the amount of mortgages available.”