UK house prices fall in September

House prices fell by 1.3% in September, according to the Halifax House Price Index. This was the smallest monthly fall for seven months.

House prices nationally declined by 5.2% in Quarter 3. This was almost identical to the 5.1% fall in Quarter 2, indicating that the trend rate of decline may be beginning to stabilise.

House prices in September were 12.4% lower on an annual basis. The UK average price has returned to close to the level it was at in January 2006 (£170,866).

House price to earnings ratio - a key affordability measure - is improving. The house price to average earnings ratio has fallen from a peak of 5.84 in July 2007 to 5.02 in July 2008. This is the lowest level for more than four and a half years (February 2004: 5.01). Halifax expect a further improvement in the ratio as prices continue to soften. The long-term average is 4.0.

The average mortgage rate paid by all borrowers (i.e. the average rate on outstanding mortgage loans) has fallen slightly from 5.91% in August 2007 to 5.83% in August 2008. Yesterday's 50 basis points cut in Bank rate will help borrowers faced with increasing pressures on their finances and provide a valuable support to the housing market.

Commenting, Martin Ellis, chief economist, said: "House prices declined by 1.3% in September. The overall price decrease in the three months to September was very similar to that in the previous quarter, indicating that the trend rate of decline may be beginning to stabilise.

The ongoing pressures on householders' income, combined with the reduction in the availability of mortgage finance, however, mean that market conditions will remain challenging."