House prices post record annual fall

House prices fell for the seven month running last month to stand a record 12.7 per cent lower than a year earlier, a survey showed yesterday, in a sign the property downturn has already turned into a crash.

HBOS, Britain's biggest mortgage lender, said house prices in the world's fourth biggest economy fell 1.8 per cent last month alone, as the global credit crunch had made it much harder for people to get mortgages.

More than £25,000 has been wiped off the value of the average home in the last year as a decade-long boom turned into a bust that helped bring the economy to a standstill in the second quarter of this year.

Construction and retail companies have been among the hardest hit and consumer confidence has been battered as two-thirds of British households own their homes - and economists say it could get a lot worse.

"Very negative housing market sentiment heightens the risk that house prices will continue to fall sharply for some time to come," said Howard Archer, economist at Global Insight.

"Unemployment is now rising at an accelerating rate which increases the likelihood that people will have to sell their house for 'distressed' reasons. This would lead to more houses coming on to the market and would be liable to depress prices."

One Bank of England policymaker, David Blanchflower, said last week that a forecast of a 30 per cent fall in house prices was looking optimistic.

Prime Minister Gordon Brown unveiled a £1.6 billion package this week to help people with their mortgages and breathe some life into the moribund market.

This included raising the threshold of the house value at which people have to pay tax when buying a home to £175,000 from £125,000 for a year.

But economists said the steps were unlikely to provide any kind of meaningful turnaround.

"The measures announced by the government this week may be able to put a floor under the recent slide in house purchase activity," said Allan Monks, economist at JP Morgan.