Residential housing is still on the downturn. Photo: Bloomberg

British property market still declining

British house prices fell in August for a second month as demand declined amid a "fragile" market, London-based property-research company Hometrack said.

Values slipped 0.1 per cent from July, when they also fell 0.1 per cent, Hometrack said this week. A measure of demand fell for a third month, dropping 1.3 per cent, while a gauge of supply rose 0.8 per cent.

Britain's property market remains under pressure as the economy struggles to recover from a recession and the euro-area debt crisis drags on, undermining confidence and pushing up lending costs. Bank of England officials are assessing the impact of their new plan to boost credit as they mull whether to expand stimulus for the economy through quantitative easing.

"The market remains in a fragile state," Richard Donnell, director of research at Hometrack, said in the report. "As the supply-demand balance weakens, we expect to see slow downward pressure on prices over the remainder of 2012."

Prices in nine of the 10 regions measured by Hometrack fell in August. Values in London were unchanged, the first time this year prices in the capital failed to rise. Prices are down 0.5 per cent on the year.

In the year to date, demand for property has risen 10 per cent, lagging behind a 19 per cent surge in supply and adding to downward pressure on prices.

In a separate report, mortgage lender Halifax said mortgage affordability was at its best in 15 years after house prices and borrowing costs declined. The average proportion of disposable income needed for mortgage payments for a new buyer was 26 per cent in the second quarter, it said. That compares with 29 per cent in the same period last year and an average of 36 per cent over the past 27 years.

The Bank of England started a programme this month to encourage banks to lend by providing them with cheap access to funding.

Mortgage approvals fell to an 18-month low in July as concerns about the crisis in Europe deepened. Policy makers held their target for bond purchases at £375 billion pounds (HK$4.6 trillion) this month and the benchmark interest rate at a record low of 0.5 per cent.

"The prospect of interest rates remaining at low levels for sometime yet is expected to continue to be a key factor supporting the demand for homes," said Martin Ellis, housing economist at Halifax. That will help "to keep house prices around their current level during the remainder of 2012."

This article appeared in the South China Morning Post print edition as: British prices dip for second month