LONDON—British house prices fell for the seven month running in August to stand a record 12.7 percent lower than a year earlier, a survey showed on Thursday, in a sign the property downturn has already turned into a crash.
HBOS Plc, Britain's biggest mortgage lender, said house prices in the world's fourth biggest economy fell 1.8 percent last month alone, as the global credit crunch had made it much harder for people to get mortgages.
But Bank of England policymakers are expected to hold interest rates at 5 percent for a fifth straight month when they end their meeting at 1100 GMT due to concerns over inflation, currently running at more than double the bank's target.
More than 25,000 pounds has been wiped off the value of the average British home in the last year as a decade-long boom turned into a bust that helped bring the economy to a standstill in the second quarter of 2008.
Construction and retail companies have been among the hardest hit and consumer confidence has been battered as two-thirds of British households own their homes—and economists say it could get a lot worse.
"Very negative housing market sentiment heightens the risk that house prices will continue to fall sharply for some time to come," said Howard Archer, economist at Global Insight.
"Unemployment is now rising at an accelerating rate which increases the likelihood that people will have to sell their house for 'distressed' reasons. This would lead to more houses coming on to the market and would be liable to depress prices."
One Bank of England policymaker, David Blanchflower, said last week that a forecast of a 30 percent fall in house prices was looking optimistic.
Prime Minister Gordon Brown unveiled a 1.6 billion pound package this week to help people with their mortgages and breathe some life into the moribund market.
This included raising the threshold of the house value at which people have to pay tax when buying a home to 175,000 pounds from 125,000 for a year.
But economists said the steps were unlikely to provide any kind of meaningful turnaround.
"The measures announced by the government this week may be able to put a floor under the recent slide in house purchase activity," said Allan Monks, economist at JP Morgan.
"But the changes by themselves look unlikely to meaningfully revive the market given the reasons why transactions have fallen to such lows in the first place."
One of the biggest problems facing the housing market is the availability of mortgage finance in the face of the credit crunch.
The Council of Mortgage Lenders wrote to the government this week to ask for an extension of the Bank of England's Special Liquidity Scheme which closes to new lending next month, though it allows banks to roll over existing loans for up to 3 years.
The government has said it is still in talks with the central bank over what the right steps to take are and is awaiting an independent review of mortgage finance measures, expected in the next few weeks.
