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U.K. Hometrack House Prices Decline for a Fifth Month

Feb. 25 (Bloomberg) -- U.K. house prices dropped for a fifth month in February as banks curbed mortgages and buyers struggled to afford them, a report by Hometrack Ltd. showed.

The average cost of a home in England and Wales fell by 0.2 percent to 174,400 pounds ($343,000), the London-based research company said today. House prices increased an annual 1.4 percent, the least since April 2006.

The Bank of England lowered the benchmark interest rate by a quarter-point to 5.25 percent this month and predicted consumer spending will weaken as the housing market slows. Hometrack forecasts property prices will rise just 1 percent this year, a third of the gain in 2007, as banks scale back mortgages and decline to pass on central-bank rate cuts in full.

``It is too early to talk of a major turnaround in the fortunes for the housing market,'' said Richard Donnell, director of research at Hometrack. ``Any upward pressure on prices is likely to remain limited for the foreseeable future.''

The pound fell as much as 0.2 percent today and traded at $1.9647 as of 10:42 a.m. in London.

U.K. mortgage approvals fell by almost a third in January from a year earlier, the British Bankers' Association said in a separate report. Banks granted 44,288 loans for house purchase, an annual drop of 31 percent.

End of Boom

Hometrack's report is based on a survey of 3,500 real estate agents and surveyors, calculating average values using judgments of achievable prices rather than sale prices alone. Values based on completed housing transactions rose 9.1 percent in 2007, the Department for Communities and Local Government said Feb. 11.

Demand for housing may be picking up again, Hometrack said today. The number of new buyers increased for the first time since June, led by London and the southeast.

``While the latest survey reports prices down across a third of the country, we expect the extent of these falls to slow over the coming months as demand continues to improve on the back of lower mortgage rates,'' Donnell said.

Bank of England policy makers cut the interest rate this month after a quarter-point reduction in December to cushion the economy from contagion from the collapse of the U.S. subprime mortgage market. The majority defeated David Blanchflower's call for a half-point cut, the first since 2001.

``The risk I believe to be of most concern is around the interplay between the property market and the financial sector resulting from the credit turmoil,'' Bank of England policy maker Kate Barker said in a Feb. 19 speech.

Passing On Rate Cuts

Lenders lowered interest rates on the most popular mortgages in January by less than half of the reduction in the Bank of England benchmark the previous month, central bank data showed on Feb. 11. Banks plan to reduce the supply of credit to consumers and companies in the first quarter, a central bank survey showed Jan. 3. British households already have record debt of 1.4 trillion pounds.

The U.K. housing-market slump deepened in January to the worst since the British economy emerged from its last recession in 1992, the Royal Institution of Chartered Surveyors said Feb. 13. Apart from Scotland, every region showed declines. HBOS Plc, the country's biggest mortgage lender, said Feb. 5 that home values stagnated in January.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net .

http://www.bloomberg.com/apps/news?pid=20601087&sid=a5hqSEQB1u_U&refer=home
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