House prices are predicted to continue falling after hitting an eight month low in October as mortgage lending dropped.
Economists are expecting house prices to stagnate after the latest Nationwide house price survey showed a 0.7 per cent drop in October, with the average home selling for £164,381, down from £166,757 in September.
Rather than seeing the usual seasonal upward trend in mortgage lending, September saw a fall of one per cent compared to the previous month, which could be driving house prices down.
Commenting on the figures, Martin Gahbauer, chief economist at Nationwide, said: "The three month on three month rate of change – a smoother indicator of the recent price trend – fell to -1.5% in October from -1.0 % in September. This is the largest decline over three months since April 2009, but is still well below the 5-6% rates of decline on the three month measure seen during the second half of 2008."
"The annual rate of change – which compares the current level of house prices against their level twelve months ago – declined from +3.1% in September to +1.4% in October."
Nationwide has calculated that if the recent trend in house prices continues for the rest of the year, "the annual rate of house price inflation would drop to between 0% and -1% by the end of 2010. This would compare to a rate of +5.9% at the end of 2009."
While mortgage lending saw its lowest September level for 10 years last month, and was down 4.00 per cent year-on-year, quarterly gross mortgage lending was up 9.00 per cent compared to the second quarter of this year.
CML director general Michael Coogan does not expect mortgage lending to see a substantial increase for the remainder of 2010, as "Funding pressures on lenders remain, and the practical implications of government and public spending cuts are beginning to emerge, with a resulting impact on consumer confidence."
But while mortgage lending remains constrained, a combination of initiatives from the government, mortgage lenders and money advice agencies has succeeded in keeping arrears and repossessions to a minimum in a difficult financial climate.
These support measures help contain the wider costs of homelessness, and deliver wider benefits to the government," Mr Coogan said, and encourages the Government not to impede its recovery. "Now is not the time to weaken the existing safety net," he said.
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