Halifax: House prices down 2.5% in March

UK house prices slid 2.5 per cent in March as the mortgage crunch and economic fears combined to further chill the property market.

The March fall follows a 0.4 per cent decrease in February and adds weight to fears the market is now under severe strain.

Annual growth has now slowed to 1.1 per cent, the lowest level for 12 years, while in the quarter to March prices dropped one per cent.

Halifax now finds the average price for a property in the UK is some £191,556.

However, despite the general gloom, across the country there was a mixed picture.

The biggest price rises in the last quarter were in Greater London (1.6 per cent), East Anglia (1.4 per cent) and the East Midlands (2.2 per cent).

There were also gains in the north (1.2 per cent) and Scotland (0.2 per cent).

Prices in the south-east were unchanged.

Scotland, 5.3 per cent, and Northern Ireland, 3.5 per cent, have also seen above average growth over the last year.

However, Halifax explains the drop in prices should be taken in context.

Prices have increased by around 171 per cent in the previous decade, from an average of £70,696 to £191,556.

A strong market is also supporting prices.

"Sound economic fundamentals are supporting house prices. A strong labour market, low interest rates and a shortage of new houses underpin housing valuations," explained Halifax chief economist, Martin Ellis.

"Our research shows that the labour market is the key driver of the housing market. Employment is at a record high and unemployment continues to fall."

The slowdown in the market is forcing lenders to curtail their product range, and making borrowing difficult. As a result homebuyers are being forced to pay a higher level of deposits for their property.

Halifax finds 82 per cent of all new borrowers put down a deposit of more than ten per cent of the house price during the final quarter of 2007, whereas by contrast 56 per cent of new borrowers put down a deposit of more than ten per cent in 1989 and 1990.

Furthermore, the average deposit put down by a first-time buyer in 2007 (£34,381) represented 20 per cent of the purchaser price, compared with 12 per cent in 1989.

The new research has prompted analysts to lower their expectations for the coming year.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "The sharp fall in the Halifax house price index in March highlights the growing pressure on the residential market as lenders continue to scale back their activity in the market.

"Loan-to-value ratios are being lowered at the same point as borrowing rates are being raised putting increasing pressure on first-time buyers who are having to find ever larger deposits. There is moreover a real risk that year-on-year house price inflation will turn negative over the next month or two. This will compound the negative newsflow on the housing market.

"The Bank of England could respond to growing fears about the impact of the credit crunch and the worsening state of the property market by cutting interest rates on Thursday. Even so, we suspect that any immediate benefit for new home buyers is likely to be limited."