March 29 (Bloomberg) -- U.K. house prices fell the most in two years and mortgage approvals dropped to an eight-month low as economic uncertainty hurt demand for property and banks tightened lending conditions.
Home values dropped 1 percent in March, the biggest decline since February 2010, Nationwide Building Society said in an e-mailed statement today. Lenders granted 48,986 property loans to Britons in February, compared with 57,899 in January, the Bank of England said in a separate report in London.
Bank of England Governor Mervyn King said this week that the financial crisis hasn’t gone away as banks continue to shore up balance sheets to protect themselves from the euro-area debt crisis. The housing market may face further pressure as job cuts undermine consumer confidence, and a central bank survey published today showed banks expect mortgage availability to decline “slightly” in the second quarter.
“U.K. data releases this morning were in the round somewhat disappointing,” said David Tinsley, chief U.K. economist at BNP Paribas SA and a former Bank of England official. Today’s data “confirms that the housing market remains depressed by any historical comparison” and signals the economy is going to have “a rougher road in the second quarter.”
In a separate report, the Office for National Statistics said U.K. services industries grew 0.2 percent in January, adding to evidence that the economy gained momentum in the first quarter. Output rose 1.8 percent from a year earlier. Services account for 76 percent of the British economy.
March’s house-price decline was the third drop in four months and left the average value at 163,327 pounds ($259,000), Swindon, England-based customer-owned lender Nationwide said. From a year earlier, prices fell 0.9 percent, the first annual drop in six months.
Part of the decline in mortgage approvals in February may reflect the end of an exemption for first-time homebuyers from a tax on house purchases below 250,000 pounds, BNP’s Tinsley said. While the tax holiday ended on March 24, Tinsley said some buyers may have sought home loans early to ensure they beat the deadline.
Mortgage availability decreased this quarter for borrowers with small deposits, while credit scoring criteria were tightened and more loan approvals rejected, the Bank of England’s credit conditions survey showed. Lenders predicted that the availability of mortgages for all borrowers will fall for the first time in two years in the next three months.
Britain’s economy shrank 0.3 percent in the fourth quarter from the previous three months, more than an initial estimate, data yesterday showed. Real household disposable income fell 1.2 percent last year, the biggest drop since 1977.
“The challenging economic backdrop is likely to continue to act as a drag, with house prices moving sideways or modestly lower over the next 12 months,” Robert Gardner, chief economist at Nationwide, said in today’s report. A slowdown in house prices this month “was to be expected, given the imminent expiry” of the tax holiday, he said.
Elsewhere in Europe, economic confidence in the euro region unexpectedly declined in March, signaling that the economy may struggle to regain strength in the first quarter. An index of executive and consumer sentiment in the 17-nation euro area fell to 94.4 from a revised 94.5 in February, the European Commission in Brussels said. Economists had forecast a gain to 94.5 from a previously reported 94.4, the median of 29 estimates in a Bloomberg News survey showed.
Organization for Economic Cooperation and Development Chief Economist Pier Carlo Padoan said that the euro area isn’t “out of the woods yet.” The Paris-based organization released forecasts showing annualized gross domestic product on a combined weighted average for Germany, Italy, and France will fall 0.4 percent in the first quarter, and will also drop by the same amount in the U.K.
German unemployment still declined more than forecast in March, adding to evidence that growth in Europe’s biggest economy is gaining traction. The number of people out of work fell a seasonally adjusted 18,000 to 2.84 million, the Nuremberg-based Federal Labor Agency said today.
In Japan, retail sales rose more than economists forecast in February, increasing 3.5 percent from a year earlier, a third straight monthly rise, the Trade Ministry said in Tokyo. South Korea returned to a current-account surplus in February as exports rose amid signs of an improving U.S. economy and as the euro-area debt crisis eased.
In the U.S., a Commerce Department report today may show fourth-quarter gross domestic product rose at a 3 percent annual rate, unchanged from a prior estimate, according to a survey of economists. A Labor Department report may show initial claims for unemployment benefits were little changed at 350,000 in the week ended March 24, another survey showed.
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