UK House Prices Situation: 13.7% fall in last year, according to latest Halifax figures
UK House

Prices Forecast: House prices still above long-term average - further to fall

Latest Figures Show House Prices Continuing to Fall

New figures from Britain's biggest mortgage lender, the Halifax, have shown that average house prices are continuing to fall steadily. Average prices are currently 13.7% lower than they were one year ago.

House prices fell by an average of 2.2% in October - the biggest fall since May and the ninth consecutive month in which Halifax has recorded a fall.

Despite the falls, the average UK house price is still 22% higher than it was five years ago, meaning that many people's homes will still be worth considerably more than when they bought them.

Long-Term Trends Suggest Further Falls

House prices (like share prices) tend to move in boom and bust cycles. However, over the long-term, they usually show a steady increase in value.

The long-term average house price is four times average earnings. Since early 2004, the average house price to earnings ratio has been above 5.0 - meaning that affordability has been below average.

August 2008 saw the average house price to earnings ratio fall below 5.0 for the first time since 2004. It is now around 4.9, which means that affordability for buyers is improving.

The bad news is that 4.9 is still considerably above 4.0, the long-term average. That means that house prices are likely to fall much further before they start to rise again.

How long this will take is unclear, but based on this year's falls, it seems unlikely that prices will stop falling much before the end of 2009.

Read about UK House Price indexes / key statistics that track the ups and downs of house prices

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

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