House prices fall furthest in 25 years
Yet more doom and gloom was heaped on the housing market yesterday as retail bank Halifax announced the first double-digit drop in prices since 1983.
Prices dipped a further 1.8 per cent in August following a drop of 1.7 per cent in July, marking the fifth month running that house prices have dropped by at least 1.5 per cent.
Major downward pressure on house prices is continuing due to extremely weak market activity, stretched buyer affordability and tight lending conditions.
Economists at Global Insight said that it is highly likely house prices will only continue to plummet given data from the Bank of England earlier this week revealing record low mortgage approvals for house purchases in July.
In an attempt to inject some action into the faltering housing market, the government has raised the initial stamp duty threshold to £175,000 from £125,000. This should reduce the stamp duty burden for a significant number of homebuyers, but mainly outside the south east of England, where a far greater total of sales were below £175,000 in the past year.
But economist Peter Newland at Lehman Brothers said market conditions would remain challenging: “With prices falling at a 21 per cent annualised rate (on a three-monthly basis) the incentive to bring forward a purchase to save one per cent stamp duty is largely non-existent,” he said.
According to the Halifax, a quarter of a million homebuyers in England and Wales would not have paid stamp duty in the past year if the threshold had been £175,000 rather than £125,000. Martin Ellis, economist for Halifax said: “A solid labour market, low interest rates and a shortage of new houses continue to support the market. The pressure on income, together with the reduction in the availability of mortgage finance, is resulting in lower activity levels.”