British house prices tumbled at a record 16.1 per cent in November, marking the sharpest drop in property values for a quarter of a century.

Figures released this morning by Halifax revealed that prices fell 2.6 per cent in November compared with October, and are 16.1 per cent lower than in November 2007.

The year-on-year decline is deeper than falls recorded during the last recession in the early 1990s, and is the biggest drop since 1983.

The shock fall emerged just hours before the Bank of England’s Monetary Policy Commitee (MPC) cut the interest rate again by 1 per cent to 2 per cent, after last month reducing borrowing costs by 1.5 per cent to 3 per cent.

The reduction is likely to be accompanied by a rate cut by the European Central Bank, which is predicted to fall by 50 basis points in the 15-nation eurozone.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “Ongoing very tight credit conditions, still relatively stretched housing affordability on a number of measures, faster rising unemployment, muted income growth and widespread expectations that house prices form a powerful set of negative factors are weighing down on the housing market.”

The average price of a house in the UK is back to the July 2005 level of £163,445, but this is 124 per cent higher – or £90,000 – than the figure in November 1998.

Mr Archer said Halifax’s figures had placed further, last-minute pressure on the Bank to deliver a large cut in rates.

IHS Global Insight predicted that interest rates would fall as low as 0.5 per cent in the first half of the new year, and could be reduced even further.

Central banks around the world have cut interest rates ahead of today’s moves.

Sweden’s central bank today cut its key rate by a record 175 basis points, to 2 per cent, the third reduction since October and the biggest since 1992. It expects rates to remain at 2 per cent throughout next year.

The Riksbank said there was an “unexpectedly rapid and clear deterioration in economic activity since October”.

December 4, 2008
Rosie Lavan

Source: Times Online