UK House Prices Situation: Average prices falling

UK House Prices Forecast: Falls of 5% - 10% expected this year

Halifax: House Prices Fall 2.5% in March

The latest house price survey by Halifax has found that house prices fell by an average of 2.5% in March, confirming that the housing boom is well and truly over.

This also means that house prices have finished the first quarter of 2008 1% lower than they were at the end of March 2007. In other words, prices are an average of 1% lower than they were at this time last year.

Commenting on the figures, Halifax chief economist Martin Ellis said "Overall, we expect there to be a modest fall in UK house prices this year. Any declines, however, should be viewed in the context of the significant price rises over recent years. The average UK price has risen by £120,860 during the past decade from £70,696 to £191,556; an increase of 171%."

Ellis makes a good point - house prices had risen so far that they were unaffordable to a great many people and required extremely large mortgages for many others. This is a position also taken by other economic observers, including the International Monetary Fund (IMF). The IMF warned this week that UK housing was overvalued by up to 30% and at risk of serious price falls.

Mortgage Lenders Preparing For Bigger Falls

As part of their regulatory responsibilities, UK mortgage lenders are required to 'stress test' their lending arrangements. What this means is that they must work out what would happen in certain scenarios - for example if house prices fell.

Until recently, these stress test scenarios have often only included falls of 5% - 10%. However, many lenders are now testing their lending portfolio with much bigger house price falls in a sign of growing anxiety about the future of the housing market.

Speaking to The Independent, Matthew Bullock, Chief Executive of Norwich and Peterborough BS, admitted that they have recently upped their model from a 5%-10% fall to a 15%-20% fall, although he stressed that "we are not predicting house prices will crash."

Read our take on the Credit Crisis the effect on UK House Prices and Mortgages. A Special Report

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