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Mortgage holders hit by house price drop

Date: Thu, 04 May 04 Analysis

House prices fell at their fastest rate for four years in October, according to new figures from the Halifax bank.

The average cost of a house dropped 1.1 per cent over the month.

Over the three months ending with October prices fell 0.4 per cent - the first quarterly drop since the final three months of 2000.

"Recent price movements confirm that the Bank of England's interest rate hikes have taken impetus away from housing demand while first-time buyers continue to be held back by affordability constraints," said Martin Ellis, chief economist at the Halifax.

Strong rises earlier in the year mean that, despite the recent drops, the average house price remains 18.5 per cent higher than the same point last year.

House prices have doubled since the late 1990s and the average house now costs £160,857, according to the country's largest mortgage lender.

But over the last 12 months the Bank of England has increased the cost of borrowing money in the UK five times and this has taken the force out of the housing market.

But this does not mean that a crash is imminent.

Mr Ellis added: "The housing market seems to be moving into a slowdown following the period of strong growth in 2003 and early 2004.

"The rises and falls we have seen in prices in recent months are part of the ebb and flow of the market as it finds a new base.

"We expect house price growth to continue to moderate into 2005 as the Bank of England's rate increases and first-time buyer affordability constraints dampen demand."

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