Nationwide warns house prices likely to fall further
House prices will continue to fall in the near future, the Nationwide building society has suggested.
The lender said potential buyers were being deterred by the uncertainty generated by the government's public spending cuts.
However it said price falls would not be as great as in 2008 due to low interest rates, which will restrict mortgage arrears and repossessions.
The society has seen its half-year profits rise by 81% to £259m.
"In the housing market, conditions have weakened noticeably over the last six months, with both a decline in buyer demand and a modest downward trend in house prices," said the Nationwide's chief executive Graham Beale.
Low interest rates
House prices have been declining since the summer.
The Nationwide's own monthly survey showed recently that they had dropped by 3% since June and were only slightly higher than they were a year ago.
Despite the stagnation of the property market, the Nationwide's own finances have improved in the first half of 2010.
The rise in half-year profits was inflated by a one-off profit from financial derivatives aimed at hedging against adverse interest rate movements.
But the value of bad debts on the society's residential mortgages fell by 44% to £179m.
Only 0.67% of Nationwide mortgages were three months or more in arrears, which it said was less than a third of the industry average of 2.15%.
The society also said interest rates would probably stay very low for another year.
"The Bank of England is likely to keep interest rates near record low levels for longer in order to offset the dampening impact of spending cuts," said Mr Beale.
"We do not expect any change in the Bank of England base rate until late 2011, despite inflation remaining above the government's target."
Gross mortgage lending by the UK's banks - the total lent before taking account of the effect of capital repayments - was just £7.6bn in October.
The British Bankers' Association (BBA) said that was the lowest total since February 2001, and was 16.1% lower than in October last year.
"Activity in the mortgage and consumer credit markets continued to be subdued in October, reflecting uncertain prospects for households and lower consumer confidence," said the BBA's statistics director, David Dooks.
The number of bank mortgages approved for house purchase, but not yet lent, fell slightly from 31,058 in September to 30,766 in October.
That was below the average monthly figure for the previous six months of 33,914, and suggests that activity in the property market will stay subdued in the coming months.