House prices begin to fall

House prices fell by 0.1% during July as rising interest rate rises took their toll on the property market, figures showed today.

The property website Hometrack said the average price of a house in England and Wales slipped by ?200 to ?152,300 during the month, as buyers took heed of the rising cost of borrowing and warnings from the Bank of England.

Monthly rises in house price growth have been falling steadily over the past six months from a peak of 0.9% in February.

At the same time the number of people looking to buy a house fell for the second month in a row during July, helping to wipe out the excess demand that has been driving prices up.

The group said it had reduced its forecast for growth during 2004 to just 5%, from 8% at the beginning of the year. Prices have so far risen by only 3.6% since January.

It said it does not expect the housing market to crash, although house price growth will stall to 0% during 2005.

John Wriglesworth, Hometrack's housing economist, said: "Rising interest rates and speculative fears of a housing market crash has resulted in falls in house prices across many parts of the country.

"The largest falls were mainly recorded in the south-east and central Midlands, whereas counties on the outskirts of the country have maintained their upward momentum.

"We anticipate that a ripple of negative price changes will spread out over wider regions of the UK, as the full effect of the most recent interest rate rises have not yet fed through to the market."

He warned that further interest rate rises, or "sabre-rattling speeches" from Bank of England governor Mervyn King, could risk an even more marked downturn in the housing market.

The biggest house price falls were seen in central London and the City, where the cost of property dropped by 0.8%, followed by Northumberland, south-west London and east Sussex with falls of 0.7%.

Overall, 16 counties recorded price falls, while the cost of property remained unchanged in 17 counties and rose in 24 counties.

Prices rose fastest in north Wales, where they increased by 0.6%, while in Cornwall and Norfolk they increased by 0.4% and in north Lincolnshire they were 0.3% higher.

Sellers achieved an average of 95.5% of their asking price during the month to July 20, down from 96.2% in June, and the lowest figure since February this year, suggesting the market is turning against sellers in favour of buyers.

The average time taken to sell a house rose to 4.8 weeks from 4.2 weeks, while the number of sales dropped by 1.8%, the first fall this year.