U.K. house prices posted the first annual decline since 1996 in April as mortgage lending dried up and the construction industry shrank the most in almost a decade, industry reports showed.
The average cost of a home declined 0.9 percent to 189,027 pounds ($373,082) in the three months through April from a year earlier, HBOS Plc, the U.K.'s biggest mortgage lender, said today. That was the first annual drop in HBOS's index since February 1996. An index of building activity fell to 46.1 from 47.2 in March, the Chartered Institute of Purchasing and Supply said.
The reports show Britain's worst property slump since the end of the last recession is deepening as lenders tighten credit standards. Mortgage approvals fell to the lowest level since at least 1999 in March and Persimmon Plc, the U.K.'s largest homebuilder, said April 24 it's postponed construction on new sites after an increase in cancellations.
```There's no doubt that the housing market continues to weaken and construction is having a hard time with lower business investment,'' said Philip Shaw, an economist at Investec Securities in London. ``Given where we are with the credit crunch, we wouldn't be surprised to see another rate cut in June.''
`Aggressive Action'
Bank of England policy maker David Blanchflower, the only Monetary Policy Committee member to vote for a half-point cut last month, said April 29 house prices may fall 33 percent in the next three years and the central bank may have to take ``aggressive action'' on rates to stave off a recession.
While the central bank has cut its benchmark rate three times since December, higher interbank lending costs have prompted HBOS and other mortgage lenders to withdraw their best offers.
The property slump comes just as the popularity of Prime Minister Gordon Brown's Labour Party sinks. The party is headed for its worst performance for more than three decades in local council elections, with a British Broadcasting Corp. projection putting it in third place with less than a quarter of the vote.
``People want to be assured that the government will steer them through these difficult economic times,'' Brown, who took over from Tony Blair in June after 10 years as finance minister, said today in London.
There are few signs that house prices will turn around anytime soon. The HBOS report comes two days after Nationwide Building Society said its index showed the first annual drop in house prices in 12 years. The Bank of England uses both reports when assessing the state of the housing market.
`Gaining Momentum'
``There is no evidence at all that the decline in prices is tempting any potential buyers back into the market and the fall in house prices is gaining momentum,'' said Malcolm Barr, economist at JPMorgan Chase & Co. The bank plans to publish revised house- price forecasts next week after today's figures.
The credit squeeze is also threatening commercial property. Banks and securities firms may cut as many as 40,000 jobs in London in the coming months, according to forecasts by analysts at JPMorgan Chase & Co, which will reduce demand for office space.
The pound rose 0.7 percent to 77.79 pence per euro today and climbed to $1.9870 against the dollar. U.K. stocks rose today and the Bank of England yesterday said yesterday the credit crisis has left investors too pessimistic about asset prices, raising the prospect of a respite for Britain's financial system.
HBOS said today house prices fell 1.3 percent from March, when they declined 2.5 percent. It expects a ``mid-single-digit percentage'' drop in values this year.
Property Stocks
Property-related stocks have plunged since credit markets seized up in August. Bradford & Bingley Plc, the U.K.'s biggest lender to landlords, has dropped 60 percent; shares of HBOS and Persimmon have both dropped around 50 percent in the period.
``People should prepare themselves for the commercial and residential markets undershooting what people would see as a fair price in a good economic environment,'' said Ed Stansfield, property economist at Capital Economics in London.
The Bank of England will probably keep its benchmark rate unchanged at 5 percent on May 8 as policy makers weigh the threats of slower growth and faster inflation, according to the median forecast of 30 economists surveyed by Bloomberg News.
Governor Mervyn King said this week the central bank faces a ``difficult balancing act'' and inflation may exceed the government's upper 3 percent limit later this year.
The National Institute of Economic and Social Research today cut its growth forecast and now expects the economy to expand 1.8 percent this year, down from the 2 percent it predicted in January.
The Bank of England on April 21 offered to help financial institutions by offering to swap government bonds for mortgage securities to boost banks' liquidity. King pledged to meet demand even if it exceeds an estimate of 50 billion pounds.
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