UK house prices fall record 16.2 pct y/y in Dec

British house prices fell by a record 16.2 percent year-on-year in December, taking them to their lowest level since August 2004, data from the country's biggest mortgage lender, Halifax, showed on Friday.

Prices fell by a bigger-than-expected 2.2 percent in December alone, and are now 20 percent below the peak set before the start of the credit crunch in mid-2007.

"Continuing pressures on incomes and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are expected to exert further downward pressure on the market over the coming months," said Martin Ellis, chief economist at Halifax, part of lender HBOS.

But improving house price affordability and the positive effect of falling consumer price inflation on households' real disposable income would help to support demand and limit the downturn, Ellis added.

Halifax said that houses are now at their most affordable level in five-and-a-half years, with the average house costing 4.44 times average earnings, though this is still more expensive than the long-term average of 4.0.

But access to finance has proven the key problem for house prices — a major driver of British consumer sentiment — since the start of the credit crunch, despite the Bank of England's decision to slash interest rates to 2 percent from 5 percent in October.

Bank of England data released earlier on Friday highlighted the difficulties borowers face, with mortgage approvals falling in November to their lowest since records began a decade ago.

Economists polled by Reuters had expected seasonally adjusted house prices to fall just 1.7 percent in December after November's 2.7 percent fall, which Halifax revised up from its initial estimate of 2.6 percent.

The 16.2 percent drop in average prices for the three months to December, compared to prices for the same period a year earlier, was slightly milder than the 16.6 percent economists had forecast.