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House prices plummet

29/11/2007

UK property values fell at their sharpest rate for over 12 years in November, according to the Nationwide house price index.

After house prices saw a 1.1 per cent increase in October they dropped by 0.8 per cent in November, the fastest fall-off since June 1995.

Five interest rate rises since August 2006, instability caused by turbulence on the financial markets and wider affordability constraints are among the factors believed responsible for forcing prices down.

Annual growth has fallen from 9.7 per cent in October to 6.9 per cent, well below the double-digit rates seen last year.

However Nationwide believes the underlying fundamentals for the housing market – including restricted supply and the prospect of falling rates in the near future – mean a wider crash is unlikely.

"When the underlying data is looked at in more detail the picture is a lot less startling," Nationwide's chief economist Fionnuala Earley said.

She insisted it was important not to attach too much importance to "a headline-grabbing number" and admitted concern that oversimplification could have "real effects" on the market.

"When looking at the amount prices have changed, the health of the market looks much less in jeopardy than the initial reading that may have been taken from
the balance data," she commented.

"The underlying fundamentals are perhaps more positive than the recent swings in sentiment might suggest."