Nine months of house price falls bring growth to a record low

Annual house price growth fell for the ninth month in a row during July to hit a record low, official figures showed today.

The average UK property lost 0.3 per cent of its value during the year to the end of July, the Department of Communities and Local Government said - the first time it has recorded negative annual growth since the index began five years ago.

Yet the same Government figures showed a one per cent month-on-month jump in house prices during July itself - running counter not only to the annual fall but also to the picture of decline presented by non-official indexes.

These showed steep falls during the month, with both Halifax and Nationwide saying homes lost 1.7 per cent of their value in July.

The Department of Communities and Local Government (CLG) said the difference between the indexes was down to different methodologies. Halifax and Nationwide count mortgage approvals but the CLG index counts completions instead and so its data tends to lag behind the other two by up to three months.

That suggests the more severe price falls could show up in the CGL index in the coming months.

The data is not seasonally adjusted, so July's price rise could simply reflect the traditional temporary summer increase in activity.

But the month-on-month increase was still took experts by surprise.

Howard Archer, chief UK and European economist at Global Insight, said: 'It seems odds-on that house prices will head downwards for some considerable time to come, particularly as lending conditions could well tighten further in the near term at least amid the current turmoil caused by the collapse of Lehman Brothers.'

CLG said July's price rise was driven by a 2.3 per cent jump in the cost of flats, while detached homes rose by 1.2 per cent.

The change left the average home in the UK costing £217,171, up from £215,029 in June.

Annual house price growth is now negative in all regions of the country except Scotland, the North-West, East and South-East, while in London growth has stalled, leaving average prices unchanged during the year.

But even in Scotland the pace of increases has slowed considerably, falling to just 3.6 per cent for the year to the end of July, well down on an annual rate of 9.7 per cent recorded in January.

In the South-East prices have risen by just 0.1 per cent during the year and they have edged ahead by only 0.5 per cent in the North-West.

At the other end of the scale, Northern Ireland continues to see the biggest price falls, with homes losing 10.3 per cent of their value in the year to the end of July. South-West England saw the next biggest drop at 1.9 per cent.

There are fears that the collapse of US investment bank Lehman Brothers will lead to a renewed tightening in wholesale lending, stalling the current recovery.

A CLG spokesman said: 'When looking at trends in the market, it is important to remember that UK house prices are significantly higher than five years ago.

'The current issue affecting the market is largely about the supply of credit - a very different situation to the early 1990s which was about high interest rates and unemployment.'