UK house prices resumed their decline in April after showing an unexpected increase in March, the latest report from the Nationwide building society said Thursday.
House prices dropped 0.4% month-on-month in April, indicating that March's 0.9% increase was a blip in a downward trend. However, the decline was smaller than a 1.2% fall economists had forecast.
Compared to the previous year, house prices fell 15% in April this year following another decline of 15.7% in March. On an annual basis, house prices fell uninterruptedly from April 2008.
In April, the average price for a typical house in the UK was GBP 151,861, up from GBP 150,946 recorded in March, but down from GBP 178,555 marked in the same month of the previous year.
The Nationwide said measures announced in the budget to boost the derailed housing market are welcome, but are unlikely to turn things around.
The scheme for government guarantees for new, high-quality residential mortgage backed securities are welcome and may help to boost the amount of mortgage credit available, Nationwide's chief economist Fionnuala Earley said. However, since the availability of credit is only part of the reason why the housing market is in the doldrums it is unlikely to lead to a swift turnaround in its fortunes, she added.
In his budget speech, Chancellor of the Exchequer, Alistair Darling said major UK banks will increase the availability of mortgages by around GBP 20 billion this year. He introduced a scheme to guarantee securities backed by mortgages - which will help to ease the flow of mortgage finance.
In addition, he had announced an extension of the Stamp Duty holiday on properties sold for less than GBP 175,000 until the end of the year.
Earley said the stamp duty holiday extension is also welcome as it reduces the transactions costs for borrowers at the least expensive end of the market.
While there has been no further increase in the amount of the tax free threshold, the impact of falling prices since the initial extension was announced in September 2008 means that more buyers could now benefit, she said.
Before the increase in the threshold, the typical house price was above the old GBP 125,000 limit everywhere except the Northern region. As house prices have come down, the typical house price is now below the new GBP 175,000 threshold everywhere but in London and the Outer Metropolitan region. For first-time buyers, only London has a typical house price above the threshold, she said.
Conditions in the labor market are crucial for the performance of housing market. The economy is now in the deepest recession since the Second World War. As a result, unemployment increased notably, with recent data showing that it breached the 2 million mark.
Even though negative inflation will mean that real earnings will be increasing, it is likely to be some time before this feeds into a strong enough change in sentiment to encourage a full-scale revival in the housing market, Earley said.
She noted that the correction in house prices and improved affordability conditions provide a good grounding for the housing market once domestic and global economic conditions become more favorable.
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