U.K. house prices fell in April from a year earlier, the first such decline since 1996, after the credit squeeze dried up finance for property purchases, Nationwide Building Society said.
Home values dropped 1 percent to 178,555 pounds ($352,000) from a year earlier, said Britain's fourth-biggest mortgage lender. Its index is one of the measures used by the Bank of England when assessing the housing market. From March, prices fell 1.1 percent, double the pace economists had forecast.
Mortgage lenders approved the fewest new loans since at least 1999 last month after turmoil in credit markets prompted banks to tighten standards for borrowers. While the Bank of England has cut interest rates to stave off a recession, policy maker David Blanchflower said house prices may fall by a third and a report today showed consumer confidence fell to the lowest since 1992.
``We've been expecting some moderate fall in house prices this year, and that's only to be expected since we're seeing deteriorating affordability and tighter credit market conditions,'' said Nationwide Chief Economist Fionnuala Earley in a Bloomberg Television interview. She forecasts that prices may decline as much as 5 percent this year.
The pound fell after the report, slipping as much as 0.2 percent to 79.47 pence.
Blanchflower said late yesterday that house prices may drop by a third in the next three years and urged his colleagues on the Monetary Policy Committee to take ``aggressive action'' on rates.
Rate Declines
``Monetary policy, in my view, still remains restrictive currently, and we need to take action to loosen policy sooner rather than later,'' said Blanchflower in Edinburgh. The nine- -member MPC next decides on rates on May 8.
Britain's central bank this month cut its benchmark rate by a quarter point to 5 percent, the third reduction since December. That's still the highest among the Group of Seven nations.
Nationwide's report is the latest to suggest a downturn in the U.K. housing market is worsening. HBOS Plc, the country's largest mortgage lender, said this month that prices fell in March by the most since 1992. The Bank of England said yesterday that mortgage approvals dropped to 64,000 last month, the lowest since records began in 1999.
Consumer Spending
The end of Britain's decade-long property boom may hurt consumer spending and drag down economic growth this year. The economy expanded at its slowest pace in three years in the first quarter, and GfK NOP Ltd. said today that consumer confidence fell to the lowest in 16 years in April after the property slowdown and higher oil prices dented households' spending power.
``Although retail spending has so far been remarkably resilient as the housing market has faltered, lower house prices are likely to weigh down on the consumer over time,'' Earley said. ``Weakening housing market sentiment and demand, unrelated to the financial market turmoil, will mean that we should expect slower market conditions.''
Nigel Lawson, who served as finance minister from 1983 to 1989, said on April 9 that Britain is headed for a ``prolonged'' recession. Chancellor of the Exchequer Alistair Darling forecasts growth of at least 1.75 percent this year, down from 3 percent in 2007.
The global credit squeeze, which is almost nine months old, is putting further pressure on the housing market. The Bank of England on April 21 offered to swap government bonds for mortgage- backed securities. Darling is encouraging lenders to offer more generous mortgage deals to consumers.
The swap ``should introduce some more stability and reduce volatility in the financial markets,'' Earley said. ``In terms of turning the housing market around and returning to positive rates of growth in next few months, that's very unlikely.''
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