Halifax says UK property prices likely to fall further in 2011

Residential property prices in the UK continued falling at the end of last year with a decline of 1.3% in December, according to the latest Halifax House Price Index.

It means that prices are now 1.6% lower than they were in December 2009 at an average price of £162,435. The index also shows that in the final quarter of 2010 prices were down 0.9% on the previous three month period.

Martin Ellis, Halifax housing economist, said however, that the rate of decline is significantly less than the quarterly falls of 5 to 6% during the second half of 2008 and he expects a fairly flat market in 2011.

‘Looking forward, we expect limited movement in house prices during 2011 but with the risks on the downside. Interest rates are likely to remain very low for some time.  This will continue to support a favourable affordability position for those entering the market and limit financial pressure on existing homeowners to sell,’ said Ellis.

‘Current signs that homeowners are becoming more reluctant to sell would, if continued, help reverse the imbalance between buyers and sellers. Nonetheless, uncertainty about the economy, weak earnings growth and higher taxes could put some downward pressure on demand,’ he added.

The report points out that low interest rate environment has reduced the burden of servicing mortgage debt. Typical mortgage payments for a new borrower have fallen from a peak of 48% of average disposable earnings in mid 2007 to 29% in the last quarter of 2010. This key measure of affordability is at a better level than the long term average over the past 25 years (37%) and is an important factor supporting housing demand, it says.

Overall the market activity is stabilising, it suggests. ‘The number of mortgages approved to finance house purchase, a leading indicator of completed house sales, increased in November following six successive monthly falls, according to Bank of England industry wide figures,’ it points out.

'The number of approvals, at 48,000, was the highest since July on a seasonally adjusted basis. Approvals were 19% lower than a year earlier, 59,000 in November 2009, due to the ending of the stamp duty holiday on properties between £125,000 and £175,000 at the end of 2009, which boosted the number of approvals during the last part of that year.'

Ellis added that some modest variations in house price performance across the country, however, are likely and the regional picture is likely to be affected by the impact of public spending reductions.