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House prices fall 1.2% in August, says Halifax

By Martin Fagan - news@consumerchoices.co.uk

Mixed signals as house prices climb over the last three months but drop again in August.

Following recent months of modest rises, house prices in August fell by 1.2%, according to the Halifax House Price Index.

The August fall as measured by the Halifax index wiped almost £2,000 off the average value of a UK property, which now stands at £161,743.

Last week, the Nationwide’s House Price Index reported a lesser decline of 0.6% in August.

Other data showed a modest pick-up in housing activity. According to the latest Bank of England figures, mortgage approvals increased for the third successive month in July. In addition, approvals were 2.5% higher than July 2010.

Since July 2007, mortgage rates have declined by two percentage points, which has cut typical mortgage payments for a new homeowner from a peak of 48% of disposable earnings to 28% in July 2011.

"Low interest rates are likely to continue to support the market whilst increased uncertainty about the economic outlook and pressures on householders' finances constrain demand,” said Martin Ellis, Halifax's housing economist.

Although falling house prices offer hope to first-time buyers, for many homeowners they raise the spectre of negative equity, where a property’s value is lower than the mortgage secured on it.

An analysis of UK mortgages by leading financial outsourcer, HML, showed that if house prices fell by a further 10%, the number of households plunged into negative equity could double to 1.7 million.

HML said 827,321 homeowners, or 7.3% of all households with a mortgage, currently have a debt that is higher than the value of their property.

“This analysis show just how vulnerable UK households are to a continuing fall in house prices,” said Neil Warman, HML’s chief finance officer.