House prices fell by 2.5% in March, the biggest monthly decline since September 1992, the Halifax has said.
House prices fell by 2.5% in March, the biggest monthly decline since September 1992, the Halifax has said.
The latest monthly figure from the UK's largest mortgage lender was significantly worse than many experts had expected.
The latest monthly figure from the UK's largest mortgage lender was worse than many experts had expected.
House prices are now just 1.1% higher than they were a year ago, the slowest annual growth rate for 12 years.
House prices are now 1.1% higher than they were a year ago, the slowest annual growth rate for 12 years.
The Halifax has also revised its predictions and now expects prices to fall over the course of this year.
Despite the drop in prices, Housing Minister Caroline Flint denied that the market was heading for a crash similar to the one at the start of the 1990s.
The Nationwide took a similar stance earlier this month after reporting that prices had fallen for five months in a row.
Adjustment time?
Analysts said that the weaker-than-expected data from the Halifax would raise expectations that the Bank of England would cut interest rates by at least 25 basis points to 5% on Thursday.
Speaking to the BBC, Ms Flint said that it was not fair to compare difficulties in the current housing market with the problems it was having in 1992, the last time prices fell by such a margin.
However, because the lack of liquidity in money markets is making it more expensive for banks to borrow, a rate cut would not necessarily be passed on to mortgage holders, observers say.
She said that today, the market was underpinned by a healthy employment environment and a steady economy.
'Adjustment'
However, she added that the government would keep its eye on the situation and was planning to meet the Council of Mortgage Lenders (CML) and other industry representatives next week to discuss if any action was needed to help borrowers.
The Halifax, along with all other market commentators, is now convinced a big slowdown is underway.
"We are definitely seeing an adjustment in the housing market," said Mr Martin Ellis, chief economist at the Halifax.
"I am surprised that we have seen a fall of quite this extent, but of course we have been seeing some falls in previous months, so it's not surprising that there's actually been a decline during the month."
For the first three months of the year, the Halifax said prices fell by 1.1% to a UK-wide average of £191,556, according to its data.
For the first three months of the year, the Halifax said prices fell by 1.1% to a UK-wide average of £191,556, according to its data.
Using this figure, the average house price fell by £4,912 in March.
Using this figure, the average house price fell by £4,912 in March.
Shrinking mortgages
Separate figures from the CML on Tuesday revealed the rapid contraction of the mortgage market, under the impact of problems in the global financial markets, and the subsequent credit crunch.
Since last autumn, this has restricted the ability of banks and building societies to lend money to customers.
This has led to lenders shrinking the range of mortgages on offer, demanding much higher deposits from borrowers, and raising their interest rates on certain deals.
The CML figures indicated that in the three months to February, lending to first-time buyers was at its lowest level since early 1975.
The number of mortgages granted in February to all groups of home buyers was running at its lowest level since 1992.
And loans for buying a home, rather than for people simply changing deals or expanding their mortgages to finance other spending, now make up only 30% of all mortgage lending - the lowest level on record.
Falling prices
The Halifax has also revised its predictions for 2008 and now expects prices to fall over the course of this year.
AVERAGE UK HOUSE PRICES October 2007: £197,00November 2007: £194,500December 2007: £197,163January 2008: £197,243February 2008: £196,465March 2008: £191,556 Source: Halifax(seasonally adjusted figures)
AVERAGE UK HOUSE PRICES October 2007: £197,00November 2007: £194,500December 2007: £197,163January 2008: £197,243February 2008: £196,465March 2008: £191,556 Source: Halifax(seasonally adjusted figures)
But the Halifax's chief economist, Martin Ellis, said that declines in prices "should be viewed in the context of the significant price rises over recent years".
Rival lender Nationwide took a similar stance earlier this month after reporting that prices had fallen for five months in a row.
He added that house prices were still being underpinned by "sound economic fundamentals" including a strong labour market, low interest rates and a shortage of new houses.
Analysts said that the weaker-than-expected data from the Halifax would raise expectations that the Bank of England would cut interest rates by at least 25 basis points to 5% on Thursday.
"We are definitely seeing an adjustment in the housing market," Mr Ellis said.
However, because the lack of liquidity in money markets is making it more expensive for banks to borrow, a rate cut would not necessarily be passed on to mortgage holders, observers say.
"I am surprised that we have seen a fall of quite this extent but of course we have been seeing some falls in previous months so it's not surprising that there's actually been a decline during the month."
"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," said Simon Rubinsohn, chief economist of the Royal institution of Chartered Surveyors (Rics).
Global Insight chief economist Howard Archer said that too much emphasis should not be put on one piece of data.
"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," he added.
But he added: "The overall impression is that house prices were buckling markedly under the substantial pressure emanating from increased affordability constraints and markedly tighter lending conditions even before the latest escalation of the credit crunch."
Global Insight forecast that house prices would now fall by 7% this year and by 8% in 2009.
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