HOUSE PRICES
*** STRICTLY EMBARGOED UNTIL 7.00AM THURSDAY 28TH 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
August 2008 July 2008
Headlines
329.5 335.9
Monthly index * Q1 '93 = 100
-1.9% -1.5%
Monthly change*
-10.5% -8.1%
Annual change
Average price Ł164,654 Ł169,316
* 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
Ł164,654. 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
New Build Reservations and House Purchase
Approvals
 Recent activity levels in the housing market have been
60 140
very subdued. House builders in particular have been
40
reporting significant reductions in site visits and 120
reservations of new properties since this time last year, 20
100
in spite of a big increase in the use of sales incentives.
0
80
Reservations of new property began to feel the squeeze
-20
before any slowdown was recorded in the official number
60
-40
of house purchase approvals, but the two series have
40
-60
moved closely over recent months. House builders
Reservations Balance
20
-80 (% lhs)
report that a lack of confidence in the market is the
Approvals 000s (rhs)
biggest reason behind the drop off in demand, although
-100 0
changes in lending criteria are also reported as an issue.
Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08
Source: HBF, BoE
No te: Reservatio ns 3 mo nth mo ving average
 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 Sales/stock ratio and house prices
40 70
report an improvement in new buyer enquiries, perhaps
stimulated by the recent falls in prices and the 60
30
opportunity to negotiate a good deal. However, the
50
20
reported numbers of sales have not been encouraging.
40
The ratio of sales to stocks has been a good predictor of
10
movement in house prices. Current movements suggest
30
that the increased supply of properties on agents books
0
20
will continue to act as a dampener to house price growth
House prices 3m/3m, saar (lhs, %)
-10
10
in the short term.
Sales/stock ratio (rhs)
-20 0
Borrowers choosing fixed rate mortgages
1993 1996 1999 2002 2005 2008
So urce: Nationwide, RICS
 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 research1 shows that consumers preferences have
1
Based on a sample of 1336 UK respondents, conducted by Opinion Matters for Nationwide between 25th July and 4th August 2008
www.nationwide.co.uk/hpiww
 HOUSE PRICES
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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
House Purchase and Remortgage Cases, %
100% 40
loans since October 2007, but in spite of that the
90%
30
proportion of borrowers choosing a fixed rate loan
80%
has been increasing. This is unusual for UK
20
70%
borrowers who, as the Miles Review2 illustrated,
60%
10
attach enormous weight to the level of initial
50%
0
40%
monthly repayments, rather than considering the
30%
-10
potential movements in prices over a longer period.
20%
This change in behaviour could be an indication that
-20
10%
borrowers are keen to be sure of their outgoings in
0% -30
uncertain times and wish to protect themselves,
Jun-07 Sep-07 Dec-07 Mar-08 Jun-08
even though the choice may be more expensive in
% Fixed % Tracker Fixed tracker differential (rhs)
the short run.
Source: CM L
 In addition, among the fixed rate loans available,
borrowers seem to be keeping true to their word and
Price differential from 2- year fixed mortgage rate
opting for longer term fixed rate loans. Two and 0.1%
0.1%
three year fixed rates have historically been more
0.0%
popular with house buyers and remortgagers
-0.1%
respectively, but in both cases five and ten year
-0.1%
fixed rate loans have become more popular this
-0.2%
year. At the start of the year five and ten year fixed
-0.2%
rate loans accounted for only 21% of house
-0.3%
purchase and 19% of remortgage fixed rate
-0.3%
3yr 5yr 10yr
borrowing. In June the respective proportions were -0.4%
39% and 47%. -0.4%
-0.5%
Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08
 As the Miles Review states, there are benefits to
borrowers from taking out longer term fixed rate
Source: BoE
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: [phone] Tel: [phone]
[e-mail] [e-mail]
2
http://www.hm-treasury.gov.uk/consultations_and_legislation/miles_review/consult_miles_index.cfm
www.nationwide.co.uk/hpiww
 HOUSE PRICES
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Average UK House Price Long Term Real House Price Trend
Base: Q2 2008 Trend: 2.8% per annum
Ł195,000 Ł200,000
Real House Price
Average House Price
Ł175,000 Ł180,000
Expon. (Real House Price)
Ł155,000
Ł160,000
Ł135,000
Ł140,000
Ł115,000
Ł120,000
Ł95,000
Ł100,000
Ł75,000
Ł80,000
Ł55,000
Ł60,000
Ł35,000
Ł40,000
Annual % Change in House Prices 3 Months on Previous 3 Months % Change
15.0% 4.0%
3.0%
10.0%
2.0%
5.0% 1.0%
0.0%
0.0%
-1.0%
-2.0%
-5.0%
-3.0%
-10.0%
-4.0%
-5.0%
-15.0%
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 % Ł
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
www.nationwide.co.uk/hpiww
Aug-98
Feb-99
Aug-99
Feb-00
Aug-00
Feb-01
Aug-01
Feb-02
Aug-02
Feb-03
Aug-03
Feb-04
Aug-04
Feb-05
Aug-05
Feb-06
Aug-06
Feb-07
Aug-07
Feb-08
Aug-08
Q2 78
Q2 80
Q2 82
Q2 84
Q2 86
Q2 88
Q2 90
Q2 92
Q2 94
Q2 96
Q2 98
Q2 00
Q2 02
Q2 04
Q2 06
Q2 08
Aug-05
Oct-05
Dec-05
Feb-06
Apr-06
Jun-06
Aug-06
Oct-06
Dec-06
Feb-07
Apr-07
Jun-07
Aug-07
Oct-07
Dec-07
Feb-08
Apr-08
Jun-08
Aug-08
Aug-05
Oct-05
Dec-05
Feb-06
Apr-06
Jun-06
Aug-06
Oct-06
Dec-06
Feb-07
Apr-07
Jun-07
Aug-07
Oct-07
Dec-07
Feb-08
Apr-08
Jun-08
Aug-08
3 month % change
annual % change
 HOUSE PRICES
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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
www.nationwide.co.uk/hpiww