.:: 29.07.2010
U.K. Home Values Drop in July as Confidence Wanes, Austerity Measures Loom.

U.K. house prices fell in July for the first time in five months as tighter lending conditions and concern that government cuts will slow economic growth deterred potential home buyers, Nationwide Building Society said.

The average cost of a home fell 0.5 percent from June to 169,347 pounds ($264,367), Britain’s biggest customer-owned lender said in an e-mailed statement today. From a year earlier, prices increased 6.6 percent, the weakest pace in seven months.

While the U.K. economy almost quadrupled its pace of growth in the second quarter, the government’s planned budget squeeze, the deepest since World War II, is hurting Britons’ confidence in the recovery. Mortgage approvals fell to a four-month low in June as banks curbed credit and demand for homes fell, Bank of England data showed today.

“A combination of restrictive credit conditions and uncertainty about the future economic outlook continues to limit the pool of buyers,” Nationwide’s Chief Economist Martin Gahbauer said in the statement. “Concerns about the medium-term impact of fiscal austerity on personal finances is more than outweighing any potential optimism” about the economy.

Home prices are being restrained as more people put their properties up for sale, while the number of homes being sold is about half the level recorded before the recession, Nationwide said.

Fading

Today’s release adds to evidence the housing-market recovery may be fading. Hometrack Ltd. said this month that house prices fell in July for the first time in 15 months, while Rightmove Plc, owner of the U.K.’s biggest property website, said that sellers cut prices for the first time this year.

“When we see house prices flattening off now, I think that’s not altogether surprising,” Bank of England policy maker Andrew Sentance said at a U.K. Parliament committee hearing yesterday. “The surprising thing was that they bounced back so strongly last year.”

Gross domestic product rose 1.1 percent in the three months through June, almost twice as fast as the 0.6 percent gain forecast in a Bloomberg News survey of 32 economists.

The National Institute of Economic and Social Research said the pace was a “blip” and Bank of England Governor Mervyn King said officials must be “careful not to read too much into one number.”

There may be a “considerable” way to go before the U.K.’s benchmark interest rate, currently at a record low 0.5 percent, returns to “normal,” King said.     

The Source: Bloomberg.