UK house prices in record fall

British house prices fell by a record 16.2 per cent year-on-year last month, taking them to their lowest level since August 2004, data from the country's biggest mortgage lender, Halifax, showed.

Prices fell by a bigger-than-expected 2.2 per cent last month alone, and are now 20 per cent below the peak set before the start of the credit crunch in mid-2007. "Continuing pressures on incomes and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are expected to exert further downward pressure on the market over the coming months," said Martin Ellis, chief economist at Halifax, part of lender HBOS.

But improving house price affordability and the positive effect of falling consumer price inflation on households' real disposable income would help to support demand and limit the downturn, Ellis added.

Halifax said that houses are now at their most affordable level in five-and-a-half years, with the average house costing 4.44 times average earnings, though this is still more expensive than the long-term average of four.

But access to finance has proven the key problem for house prices - a major driver of British consumer sentiment - since the start of the credit crunch, despite the Bank of England's decision to slash interest rates to two per cent from five per cent in October.

Bank of England data released highlighted the difficulties borrowers face, with mortgage approvals falling in November to their lowest since records began a decade ago.

Economists polled by Reuters had expected seasonally adjusted house prices to fall just 1.7 per cent last month after November's 2.7 per cent fall, which Halifax revised up from its initial estimate of 2.6 per cent.

The 16.2 per cent drop in average prices for the three months to December, compared to prices for the same period a year earlier, was slightly milder than the 16.6 per cent economists had forecast.