House Price Inflation Eases
August 26, 2007
It’s been rumoured for some time and forecasts have been getting more frequent. Now Government figures make it official – house price growth did slowdown during May; the property market is losing momentum at last.
A home in the UK coats an average of £211,056 in the year to the end of May – up 10.9% - according to the Department for Communities and Local Government (DCLG). To the end of April the figure was 11.3% so the latest figure is down from that, continuing the downward trend from the 23-month high of 11.8% in February 2007. Nevertheless, the latest figure is still nearly twice as high as it was in May 2006.
The data certainly seems to back the theory that the property market is starting to simmer down. The figures from DCLG show house prices having gone up by 0.7% in May, whereas the increase for the month of May a year earlier was 1.1%. The latest rise has been pulled along by a 1.8% increase in the average price of a flat; terraced house went up by 0.9% and semi-detached houses went up by 0.6%. Detached properties were only up by 0.3% and bungalows fared worst of all, going up by a mere 0.1%.
In terms of regions, Northern Ireland continued its storming year with the average cost of a home in the Province rocketing by a staggering 51.9% in the year to May. Other regions fared less well, and eight regions actually saw a fall in their annual house price inflation. There were slight rises in Yorkshire & Humberside and London and the South East, while the North West remained static.
The biggest increase in annual price growth was seen in Yorkshire & Humberside, where it jumped from 1.1% to 9.3%. Scotland saw a downward trend in annual growth, from 17.8% in April to 15.5% in May, but that’s still a healthy rise.
London still has the most expensive property with an average home costing £324,084. Scotland has the cheapest at £157,974. First-time buyers had to shell out an average of £162,055 to get on the property ladder, while movers were paying an average of £235,095 in May.
Most of the data points to the housing market losing its phenomenal momentum of recent months and years. This was almost inevitable following affordability factors, including the rising trend itself, inflation above government target and stark warnings from members of the Bank of England’s Monetary Policy Committee. In addition to those, the biggest factor has probably been the five interest rate increases in the last twelve months, including the one in May, which took interest rates to 5.5%. Another one since has pushed the base rate to 5.75%, and the forecast is for 6% to be reached by the end of the year. This has probably acted as the single biggest deterrent to buyers, causing an easing of pressure on house price inflation. The Royal Institution of Chartered Surveyors recently said that house price inflation more than halved in June as higher interest rates weakened homebuyer demand.
Alan Wright
26th August 2007
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