UK house prices fell in May by the most in at least 17 years as the shortage of credit starved the property market of buyers, Nationwide Building Society said.
The price of an average home dropped 2.5 per cent from April to £173,583 ($344,000), Britain's fourth-biggest mortgage lender said today in a statement. That's the biggest drop since the index started in January 1991. From a year earlier, prices fell 4.4 per cent.
Bank of England Governor Mervyn King predicted this month that property values are "likely to fall further" and said there is a risk that the U.K. economy may contract. Mortgage approvals fell in April by 39 per cent from a year earlier, the British Bankers' Association said this week.
"Tighter credit conditions in the market at present are making it more difficult for borrowers to obtain loans," said Nationwide chief economist Fionnuala Earley in a statement. "More weak economic news added to the gathering momentum of negative sentiment about the housing market."
Property values have now declined for seven months, the longest streak of drops since 1992, Nationwide said today. Hometrack and HBOS, Britain's biggest mortgage lender, also reported price drops this month.
Homebuyers are paying more for mortgages after the global credit squeeze prompted lenders to curb lending. UK banks increased the cost of home loans with a 5 per cent down payment to the highest in more than eight years in April, failing to pass on the Bank of England's three interest-rate cuts since December.
The central bank kept the main rate at 5 percent on May 8th as record oil prices pushed the inflation rate up by the most since 2002 in April.
Policy makers, who will take their next decision in a week, signaled they have little scope to lower rates further as inflation is set to accelerate, minutes of the meeting showed.
Bloomberg