House prices fell to 2004 levels in 2008 while mortgage lending remains low

05 January 2009 / by Rachael Stiles
UK house prices fell to 2004 levels in December 2008, according to the latest House Price Index from Halifax, and property is now the most affordable it has been for five years.

The house prices to national earnings ratio is at its lowest for half a decade, as house prices continue to fall but earnings go up, Halifax has found, and housing affordability is improving as the pressure on consumers eases, with mortgage rates and the cost of living in decline towards the end of last year compared to earlier in 2008.

December house prices fell to £159,896, 2.2 per cent lower compared to November's figures, showing an annual decline of 16.2 per cent.

Martin Ellis, chief economist at Halifax, said that while "the negative impact of the dislocation of the financial markets on the availability of mortgage finance" is "expected to exert further downward pressure on the market over the coming months, a number of factors will help to support demand and should help to limit the downturn. Improving housing affordability and an easing in the pressure on the majority of households' finances should support market activity and prices."

Halifax predicts that "Falling inflation should provide a boost to households’ spending power over the coming year. The recent reductions in Bank Rate, together with the further cuts that are likely in early 2009, will lower regular monthly mortgage payments for the approximately 50% of all mortgage borrowers who have tracker and variable rate products."

Meanwhile, data released by the Building Societies Association reveal that mortgage lending amongst building societies remained low at the end of 2008, but November showed a slight improvement on October's figures, totalling £422million – more than October's £413million but still less than half of total lending in November 2007, when building societies lent homeowners £790million.

This is reflective of the wider mortgage market, which saw total gross lending of £2,595million in November 2008 compared to £4,070million for the same month in 2007.

"The depressed housing market is seeing mortgage lending by building societies remaining low. With recent figures from the Land Registry suggesting that property prices continued to fall in November and with concerns over job security high, it is no surprise that buyers are keeping out of the market." said Adrian Coles, director general of the BSA.

"However it is encouraging to note that after the negative net advances figures in the summer the last three months have seen positive figures which suggests perhaps that the market is not deteriorating even further."

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