According to mortgage lender Nationwide prices of UK houses fell at the fastest annual rate in almost three years in July, falling by 7%. This decline is larger than that forecasted by economists following the effect that nine months of recession has had as it spread further across the economy. After the biggest annual drop since August 2009 prices are 2.6% lower than twelve months ago.
At the end of last year Britain’s economy entered recession, in the second quarter shrinking a larger than expected 7% due to bad weather, an extra public holiday and the Eurozone debt crisis adding to the effect of a cut in public spending. Robert Gardner, Nationwide’s chief economist, said he was unsurprised by the weaker price trend as the economy is underperforming.
Nationwide believe that the economy, including house prices, will only recover slightly in the next few months because of the Eurozone crisis which will limit gains from Bank of England stimulus, also a programme by the government which is aimed at increasing business lending and mortgages. The Bank of England has reported that in June lending and mortgage approvals, which are key indicators for house prices, fell to an 18-month low.
UK house prices are currently 13% below their peak rate in 2007, in comparison there has been a 15% decline in the US and almost 25% in Spain. The resilience could be due to a lack of building work before the financial crisis and a relatively small rise in unemployment since.