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U.K. Home Prices Plunge Most in Three Years, Nationwide Says

U.K. house prices recorded their biggest annual drop in three years in July as the economic slump worsened, Nationwide Building Society said.

Prices fell 2.6 percent from a year earlier, the most since August 2009, the Swindon, England-based lender said in an e- mailed report today. From the previous month, prices dropped 0.7 percent to an average 164,389 pounds ($257,800).

Britain’s recession deepened in the second quarter and mortgage approvals fell to an 18-month low in June. The Bank of England will probably keep its bond-purchase target unchanged tomorrow as officials assess the impact of their Funding for Lending program on the flow of credit in the economy.

“The weaker price trend observed in recent quarters is unsurprising, given the disappointing performance of the wider economy,” Nationwide Chief Economist Robert Gardner said in the report. “This disappointing outturn can be only partly explained by unusually wet weather and the impact of an extra bank holiday during the quarter.”

Lenders granted 44,192 loans to buy homes in June, the lowest since December 2010, the central bank said this week. Its credit statistics report also showed that net mortgage lending fell 355 million pounds in June from May, the most in 18 months. Mortgage approvals are at less than half their monthly average in the decade to 2007, before the financial crisis struck.

Demand Weakens

Other house-price indicators point to weakness in residential property. Hometrack Plc said this week prices fell 0.1 percent in July and a measure of demand dropped the most in six months.

Data last week showed the U.K. economy shrank 0.7 percent in the second quarter, the most in more than three years, after a 0.3 percent contraction in the three months through March. A GfK NOP Ltd. index of consumer confidence held at minus 29 in July, the seventh month it’s stayed in a range of minus 29 to minus 31.

The Bank of England will probably maintain its target for bond purchases at 375 billion pounds tomorrow, according to all but one of 40 economists in a Bloomberg News survey. All 53 economists in a separate poll say the bank will keep its benchmark interest rate at 0.5 percent. The central bank announces its decision at noon in London.

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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