House prices have further to fall

Tim Bennett rounds up this week’s personal finance news, including sliding house prices, the best deals on enhanced annuities and why execution-only traders should watch out.

House prices are falling at their fastest annual rate in three years, according to Nationwide. Prices fell by 0.7% month-on-month in July, and by 2.6% year-on-year the biggest annual fall since August 2009. That leaves prices a full 13% below their 2007 peak, ignoring the impact of inflation (which would make the figure even worse). Only London and the southeast bucked the trend.

However, other surveys suggest that even the London property engine room, bolstered by foreign buyers in the last few years, is running out of steam. Rightmove recently reported that asking prices had fallen by 3.6% in the capital in just one month. Add in this week's Bank of England mortgage approval data, which came in at an 18-month low, and further house price falls seem very likely for most of Britain this summer.

House price falls aren't something the government wants to see, of course. The latest attempt to arrest the decline comes in the form of the Funding for Lending Scheme. The government will make another £80bn of cheap funds available to Britain's lenders via the Bank of England and the Treasury, on condition that the money is passed on to households and businesses.

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However, this rather misses afundamental point: banks and building societies don't want to lend to anyone who is not watertight (ie, already has a huge amount of equity or collateral), even if they are offered cheap funds as a financial carrot. Worse, the availability of cheap funds from the government may encourage banks to cut the interest rates they offer savers on their deposits (if they can raise money cheaply elsewhere, they won't be as desperate to raise funds from you and I).

Thinking of buying an enhanced annuity? Make sure you shop aroundfirst. Annuities are bought by those with money-purchase (or defined-contribution) pension schemes as a way of providing an income in retirement. An enhanced version pays more to people with health problems.

But as The Daily Telegraph's Richard Evans points out, there can be a 30% gap between the best quotes and the worst ones. So don't assume that by asking your annuity provider for an enhanced annuity you are getting the best rate shop around.

Most of us are aware of the pitfalls of payday loans: quick, unsecured borrowing charging high interest rates. But as the Office of Fair Trading investigates the sector, watch out for the real killers: one-year deals. As The Independent notes, many online lenders charge APRs of up to 300%. Conversely, Sainsbury's Bank offers a fixed APR of 18.6% on a one-year £1,000 loan, albeit the application process is slower.

Execution-only online traders should watch out for a fee jump as brokers introduce fixed charges and "inactivity fees" that penalise low-volume customers ahead of the Retail Distribution Review. While we welcome improved disclosure on fees, infrequent traders will need to shop around to get the best deal.

Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.