UK house prices fell at a slower rate in March than in February, but the 1.9% drop still indicates a tough few months ahead according to the Halifax.

Halifax said the UK average house price has now returned to where it was in May 2004 (£157,326) and at least £30,000 less than a year ago.

On an annual basis, house prices in March were 17.5% lower. The annual rate of change (measured by the average for the latest three months against the same period a year earlier) improved slightly from -17.7% in February.

March 2009 House Prices
Annual change: -17.5%
Monthly change: -1.9%
Average Price: £157,326
Source:Halifax

Martin Ellis, Halifax housing economist, said: “The average UK house price declined by 1.9% in March. House prices in the first quarter of 2009 were 2.7% lower than in the previous quarter, which was smaller than the 5-6% falls recorded in each of the three previous quarters.

Completed sales in England and Wales halved between 2007 and 2008, but there are some very tentative signs that activity may be beginning to stabilise. The latest industry-wide figures show that the number of mortgages approved to finance house purchase in February – a leading indicator of completed house sales – were the highest since May 2008.

The house price to earnings ratio – a key measure of housing affordability – is at its lowest level since early 2003 at 4.34. The recent cuts in interest rates have also reduced the amount that the average existing mortgage borrower is devoting to mortgage repayments from a peak of 26.9% of household income in October 2008 to 22.6% in February 2009.

Conditions in the housing market are likely to be tough during the remainder of 2009 despite the improvements in affordability. Increasing unemployment, low consumer confidence and the constraining effects of the continuing dislocation of the financial markets on the availability of mortgage finance are all likely to exert downward pressure on the market over the coming months.”