British house prices fell for the second time in three months in December, bringing the annual rate of increase down to its lowest level in nearly three years, the Nationwide building society said today.
But while the mortgage lender's report clearly suggested that Britain's long-running property boom is over, the decline was smaller than expected, knocking gilts and pushing up the pound as dealers reckoned that interest rate cuts anytime soon were therefore less likely.
Nationwide said the average house price fell 0.2 per cent this month to £152,623 sterling following a 0.9 percent gain in November.
That left prices 12.7 per cent or 17,000 pounds higher than a year earlier, but compared with a 15 per cent annual gain in November.
"House price surveys are still pointing to a relatively soft landing for the UK property market," said Adam Cole, senior currency strategist at RBC Capital Markets.
Certainly that was the view at Nationwide which sees prices rising further in 2005 but by no means near the double-digit increases of recent years.
"The recent slowdown in monthly house price growth and the falls in housing market activity, in part, reflect the changing economic backdrop," said Alex Bannister, Nationwide's group economist.
"Five interest rate increases since November 2003, relatively subdued take-home pay growth and stretched affordability have acted as a brake on the housing market."
He noted that prices rose by 11.4 percent in the first seven months of the year but since then have only gone up by a further 1.2 percent.
The Bank of England said in its November inflation report that it expects house prices to fall modestly for a period, but the International Monetary Fund said last week it still saw the risk of a sharp correction in house prices as one of the main dangers facing the UK economy.