www.nationwide.co.uk/hpiww

HOUSE PRICES

*** STRICTLY EMBARGOED UNTIL 7.00AM THURSDAY 28

TH

AUGUST 2008

House prices continue to fall in August

• The price of a typical house fell by 1.9% in August

• More borrowers opt for fixed rate loans to protect their payments in uncertain times

• Gloomy Governor opens the door to rate cuts

Headlines

August 2008

July 2008

Monthly index * Q1 '93 = 100

329.5

335.9

Monthly change*

-1.9%

-1.5%

Annual change

-10.5%

-8.1%

Average price

£164,654

£169,316

* seasonally adjusted

Commenting on the figures Fionnuala Earley, Nationwide's Chief Economist, said:

“The price of a typical house fell by 1.9% in August, bringing the annual fall into double digits for the first time

since the fourth quarter of 1990. The price of a typical house fell by 10.5% over the last twelve months to
£164,654. While the pace of monthly falls picked up during the month, the less volatile three month on three

month measure, eased very slightly in August to 4.5% from 4.6% in July.

Activity likely to remain subdued

“Recent activity levels in the housing market have been

very subdued. House builders in particular have been

reporting significant reductions in site visits and

reservations of new properties since this time last year,

in spite of a big increase in the use of sales incentives.

Reservations of new property began to feel the squeeze
before any slowdown was recorded in the official number

of house purchase approvals, but the two series have

moved closely over recent months. House builders

report that a lack of confidence in the market is the

biggest reason behind the drop off in demand, although

changes in lending criteria are also reported as an issue.

“Estate agents’ data across all property types is a little
more optimistic and suggests that there may be some

glimmers of interest returning to the market. Agents

report an improvement in new buyer enquiries, perhaps

stimulated by the recent falls in prices and the
opportunity to negotiate a good deal. However, the

reported numbers of sales have not been encouraging.

The ratio of sales to stocks has been a good predictor of

movement in house prices. Current movements suggest

that the increased supply of properties on agents’ books

will continue to act as a dampener to house price growth
in the short term.

Borrowers choosing fixed rate mortgages

“There is clearly less mortgage borrowing taking place in

the current market, but those borrowers choosing a new loan are tending to opt for fixed rate loans, even though
they have been more expensive than trackers. Nationwide research

1

shows that consumers’ preferences have

1

B

ased on a sample of 1336 UK respondents, conducted by Opinion Matters for Nationwide between 25

th

July and 4

th

August 2008

Sales/stock ratio and house prices

-20

-10

0

10

20

30

40

1993

1996

1999

2002

2005

2008

So urce: Natio nwide, RICS

0

10

20

30

40

50

60

70

House prices 3m/3m, saar (lhs, %)
Sales/stock ratio (rhs)

New Build Reservations and House Purchase

Approvals

-100

-80

-60

-40

-20

0

20

40

60

Jun-02

Jun-03

Jun-04

Jun-05

Jun-06

Jun-07

Jun-08

So urce: HB F, B o E
No te: Reservatio ns 3 mo nth mo ving average

0

20

40

60

80

100

120

140

Reservations Balance

(% lhs)

Approvals 000s (rhs)

www.nationwide.co.uk/hpiww

HOUSE PRICES

*** STRICTLY EMBARGOED UNTIL 7.00AM THURSDAY 28

TH

AUGUST 2008

changed since this time last year. 44% of borrowers say that they are more likely to look for a fixed rate

mortgage. Furthermore 43% say that they are now more likely to consider a longer term fixed rate loan than at

this time last year.

“Tracker loans have been cheaper than fixed rate

loans since October 2007, but in spite of that the

proportion of borrowers choosing a fixed rate loan

has been increasing. This is unusual for UK

borrowers who, as the Miles Review

2

illustrated,

attach enormous weight to the level of initial

monthly repayments, rather than considering the

potential movements in prices over a longer period.

This change in behaviour could be an indication that

borrowers are keen to be sure of their outgoings in

uncertain times and wish to protect themselves,
even though the choice may be more expensive in

the short run.

“In addition, among the fixed rate loans available,

borrowers seem to be keeping true to their word and

opting for longer term fixed rate loans. Two and
three year fixed rates have historically been more

popular with house buyers and remortgagers

respectively, but in both cases five and ten year

fixed rate loans have become more popular this

year. At the start of the year five and ten year fixed

rate loans accounted for only 21% of house
purchase and 19% of remortgage fixed rate

borrowing. In June the respective proportions were

39% and 47%.

“As the Miles Review states, there are benefits to
borrowers from taking out longer term fixed rate

loans as they insulate them from the impact of

unexpected changes in interest rates. This is particularly at times when the stock of debt is large relative to

income and when the impact of changes in interest rates on affordability is high. However, it seems that price

remains an important feature. The cost of all fixed rate loans has increased since the start of the year, but two

year fixed rate loans became the most expensive. It is not clear whether borrowers are opting for longer fixed
rate loans for certainty over a longer period, but it seems likely that price is playing a part in the choice of fixed

rate term.

Economic chill remains

“The August

Inflation Report struck a markedly more dovish tone than in May, even though inflation is at its

highest level since 1992 and at more than twice its official target. There is still a great deal of uncertainty, but the

Bank of England’s forecasts of growth and inflation have been widely interpreted as opening the door to rate cuts.

Market rates have reacted to this and as a consequence mortgage rates, particularly fixed rates, have continued

to come down. We expect the next move in the Bank Rate to be down, but the extent to which this will revive the

mortgage and housing market is likely to be limited while overall confidence in economic and housing market

conditions is low.”

Fionnuala

Earley

Roy

Beale

Chief

Economist

Media

Relations

Officer

Tel:

01793

656370

Tel:

01793

655689

[e-mail]

[e-mail]

2

http://www.hm-treasury.gov.uk/consultations_and_legislation/miles_review/consult_miles_index.cfm

Price differential from 2- year fixed mortgage rate

-0.5%

-0.4%

-0.4%

-0.3%

-0.3%

-0.2%

-0.2%

-0.1%

-0.1%

0.0%

0.1%

0.1%

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Source: BoE

3yr

5yr

10yr

House Purchase and Remortgage Cases, %

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

So urce: CM L

-30

-20

-10

0

10

20

30

40

% Fixed

% Tracker

Fixed tracker differential (rhs)

www.nationwide.co.uk/hpiww

HOUSE PRICES

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TH

AUGUST 2008

Average UK House Price

Long Term Real House Price Trend

Annual % Change in House Prices

3 Months on Previous 3 Months % Change

Historical Data

Month

Monthly Index

Monthly Change

Latest 3 months on

Monthly Index

Annual Change

Average Price

Q1 93 = 100

%

previous 3 months

Q1 93 = 100

%

£

seasonally adjusted

% change

not seasonally adjusted

2007 Aug

367.4

0.7

2.5

366.9

9.6

183,898

Sep

369.3

0.5

2.0

368.5

9.0

184,723

Oct

372.5

0.9

1.9

371.1

9.7

186,044

Nov

368.0

-1.2

1.2

367.3

6.9

184,099

Dec

365.3

-0.7

0.4

363.2

4.8

182,080

Jan

363.1

-0.6

-1.2

360.0

4.2

180,473

Feb

360.5

-0.7

-1.9

357.8

2.7

179,358

Mar

356.7

-1.1

-2.3

357.3

1.1

179,110

Apr

352.9

-1.1

-2.4

356.2

-1.0

178,555

May

344.1

-2.5

-3.2

346.3

-4.4

173,583

Jun

341.1

-0.9

-3.9

343.9

-6.3

172,415

Jul

335.9

-1.5

-4.6

337.8

-8.1

169,316

2008 Aug

329.5

-1.9

-4.5

328.5

-10.5

164,654

Base: Q2 2008 Trend: 2.8% per annum

£40,000

£60,000

£80,000

£100,000

£120,000

£140,000

£160,000

£180,000

£200,000

Q2
7

8

Q2
8

0

Q2
8

2

Q2
8

4

Q2
8

6

Q2
8

8

Q2
9

0

Q2
9

2

Q2
9

4

Q2
9

6

Q2
9

8

Q2
0

0

Q2
0

2

Q2
0

4

Q2
0

6

Q2
0

8

Real House Price

Expon. (Real House Price)

£35,000

£55,000

£75,000

£95,000

£115,000

£135,000

£155,000

£175,000

£195,000

A

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Average House Price

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

A

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05

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annual

%

c

hange

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

A

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05

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8

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3 mo

nt

h %

c

hange

www.nationwide.co.uk/hpiww

HOUSE PRICES

*** STRICTLY EMBARGOED UNTIL 7.00AM THURSDAY 28

TH

AUGUST 2008

Notes:

Indices and average prices are produced using Nationwide's updated mix adjusted House Price Methodology
which was introduced with effect from the first quarter of 1995. Price indices are seasonally adjusted using the US

Bureau of the Census X12 method. Currently the calculations are based on a monthly data series starting from

January 1991. Figures are recalculated each month which may result in revisions to historical data.

The Nationwide Monthly House Price Index is prepared from information which we believe is collated with care,

but no representation is made as to its accuracy or completeness. We reserve the right to vary our methodology
and to edit or discontinue the whole or any part of the Index at any time, for regulatory or other reasons.

Persons seeking to place reliance on the Index for their own or third party commercial purposes do so entirely at

their own risk. All changes are nominal and do not allow for inflation.

More information on the house price index methodology along with time series data and archives of housing

research can be found at

www.nationwide.co.uk/hpi

Photographs of our economists are available at:

www.nationwide.co.uk/mediacentre/economist.asp