Casa Blog – UK Property Search

House prices rose 1.1 percent in October, the biggest increase in four months, the Nationwide building society said today.

On an annual basis, house prices rose by 9.7% from the same month in 2006, up from September’s figure of 9%.

However, although this is the highest month-on-month increase recorded by Nationwide for 2007, with the average UK house currently priced at £186,044, analysts believe that strong house prices do not indicate strong housing market activity.

Nationwide’s chief economist, Fionnuala Earley, said, “unless house prices perform very strongly for the rest of the year, the annual rate of price growth will edge downwards.”

“While some may be tempted to interpret October’s numbers as a sign that house prices are immune to deteriorating affordability and tightening credit conditions, such a conclusion would be misguided,” said Earley.

“Most leading indicators of housing market activity are continuing to weaken. Surveyors are reporting the weakest levels of new buyer inquiries in many years and mortgage approvals are falling from recent highs amid weaker demand and tighter lending criteria for riskier borrowers,” Ms Earley said.

According to Nationwide, fewer people have been putting their houses on the market since May, possibly because of reluctance to trade up in the face of economic uncertainty or because low unemployment is limiting the number of forced sales.

The net result is that the stock of unsold homes is still relatively low and this is providing some residual support to prices, Nationwide said. “The underlying dynamics of the market, however, are clearly not as strong as this time last year,” Ms Earley said.

Rent won’t pay the mortgage for one in 10 property investors, while a further third generate only just enough to cover their mortgage, reveals a Heritable Bank survey of more than 200 property investors.

However, the picture is not so severe if the capital gains element of property ownership is considered.

During the previous decade house prices have continued to rise, and although they have shown signs of some small falls later, they are expected to continue to rise in the long-term.

The research commissioned by the property finance expert found that 43 per cent of respondents relied most on property price growth compared to just 15 per cent who focus most on rental income.

Adrian Scott, managing director of residential mortgages at Heritable Bank said: “Three out of four property investors place at least as much importance on the future value of their properties as on generating enough income to cover their mortgage, and we firmly believe there is value in Buy to Let applications being assessed on the basis of overall affordability rather than a simple rental cover equation.”

He went on to say, “The outlook for the property market is mixed, with price growth having slowed in most regions. This is an ideal time for professional mortgage advisers and expert lenders to help investors squeeze latent value out of poorly structured Buy to Let portfolios.”

On Tuesday, Kate Barker, a member of the Bank of England Monetary Policy Committee (MPC) and an adviser to Gordon Brown on the property market, warned that there were signs the market was slowing, but said a sharp slowdown was not her central expectation.

However, she noted that house prices — regarded by many as unsustainably high — were perhaps not justified by economic conditions.