By Christina Fincher LONDON (Reuters) - House prices fell 1.7 percent in the month of September to post their biggest annual drop since comparable records began in 1991, the Nationwide building society said on Thursday. Interest rate futures rallied as investors speculated the figures increased the chance of an interest rate cut by the Bank of England next week, although analysts cautioned that a cut in itself would do little to halt sliding property values. "Even if the Bank of England cuts interest rates as early as next week, as we now expect, this is likely to provide only very limited support to the housing market given that elevated money market rates are exerting upward pressure on fixed rate mortgages," said Howard Archer, economist at Global Insight. Mortgage approvals are already less than a third what they were a year ago and figures from the Bank of England Thursday showed lenders expect to restrict credit even further in the coming months. A survey of construction, meanwhile, showed the sector contracted for a seventh consecutive month in September as commercial activity fell at the fastest pace since the survey began a decade ago. Nationwide said house prices in September were 12.4 percent lower than a year earlier. Before 1991, Nationwide conducted quarterly house price surveys. The largest annual fall on that measure was a 10.7 percent drop recorded in the early 1990s. The 11th consecutive monthly decline highlights the sharp reversal of fortune for the property market since the credit crunch took hold last summer, bringing an end to a decade in which property values almost trebled. "Casting back one year there have been some astonishing and unpredictable developments in the housing and financial markets," said Fionnuala Earley, Nationwide's chief economist. "We would need to see a significant shift in consumers' sentiment before we begin to see any real recovery in activity and subsequently house prices." September's decline pushed the average price of a property to 161,797 pounds, the lowest since February 2006. The precipitous drop in house prices both in Britain and overseas has been a key element of the crisis that is rocking the global banking sector and threatening to send many industrialised economies into recession. A reluctance by banks to lend to each other had led to a sharp increase in wholesale funding costs in recent weeks. Several mortgage providers have responded by raising their own mortgage rates. Policymakers are concerned a weakening property market could feed a vicious downward spiral of falling consumer demand and rising unemployment. Futures markets suggest the Bank of England will cut interest rates to 4.75 percent next week and to 4 percent by this time next year. A Reuters poll this week showed 45 of 66 economists polled September 29-October 1 said the BoE would hold rates at 5.0 percent next week. A cut by the end of the year is now almost a certainty with forecasters in the poll. (Reporting by Christina Fincher; Editing by Mike Peacock/Toby Chopra)House price fall biggest in 17 years
Thursday, 2 October 2008
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