Casa Blog – UK Property Search

UK house prices fell for a second consecutive month in December, according to Britain’s largest building society, Nationwide.

Prices dropped 0.5% in December after slipping 0.8% in November, but property prices were still up 4.8% year-on-year from December 2006, it said.

The three-month on three-month rate of growth, seen by commentators as a better guide to the market than monthly figures, fell from 1.4% in November to 0.9% in December.

Nationwide had predicted a rise in prices of between 5% and 8% this year, with double digit growth in the first half of the year giving way to lower increases in later months.

Fionnuala Earley, Nationwide’s chief economist, commented: “The housing market has weakened significantly in the closing months of 2007 after holding up more strongly than expected in the earlier part of the year.”

“Most indicators now show that demand is responding to the pressures of weak affordability, past increases in interest rates and the lower house price expectations that we had expected to take hold earlier in the year.”

Looking at the year ahead, Ms Earley argued it was unlikely cuts in interest rates would revive the housing market back to the inflation levels seen in the first half of this year, and would not see a recovery as strong as at the end of 2005.

Providing some hope for the market, she said: “It is true that lower interest rates will probably help market activity recover somewhat later in 2008, as lower house price growth restores some affordability and allows pent-up demand from first-time buyers to be released.

However, Ms Earley warned that it seems unlikely that there will be a big recovery in activity and prices - there will be no mirroring of the 2005 experience.

This is mainly because housing affordability is starting from a much worse position than in 2005, while interest rate cuts have started from a higher and more restrictive level, she said.

Ms Earley concluded: “Therefore, this time around lower interest rates are more likely to stabilise market activity rather than re-ignite it.”

The average UK property now stands at £182,080, an increase of £8,334 over the last 12 months.

The number of first-time home buyers in the UK has fallen to the lowest level since 1980, with average homes now unaffordable in most towns, according to the Halifax, the UK’s largest mortgage lender.

Mortgage lender Halifax said around 300,000 new buyers entered the market in 2007, 15,000 less than the previous year.

It also found that the average house was now out of reach of a typical first-time buyer in 96% of UK towns.

The average income for a first-time buyer is £31,294, while the average house price for a first-time buyer increased by 15% during this year to £175,093 - 5.59 times the average salary. During the last five years the average price has also soared by 82% from just under £96,000.

Martin Ellis, the Halifax’s chief economist, said: “Rising property values have priced many potential first-time buyers out of the market. When they do enter the market, they are now more likely to be in their thirties rather than twenties and buy a flat rather than a terrace house.

“There is no quick fix to the problem. A more subdued housing market over the next few years is a positive step for potential new entrants.”

Henley-on-Thames was the UK’s least affordable town, with an average property price of £642,672 - more than 13 times the average income of first-time buyer households in the area.

Seven out of 10 of the least affordable towns are in the South East.

Bootle in Merseyside was the most affordable location with average price of £112,689 - just over three times the average household income for a local first-time buyer household.

The Royal Institution of Chartered Surveyors (RICS) said conditions for first-time buyers should begin to improve in the coming year.

“There is huge pent-up demand from first-time buyers, and should house prices drop in the early part of the year, many will be ready to pounce, especially if more repossessions filter through into the market,” said RICS chief economist, Simon Rubinsohn.

Every property sold in England and Wales will require a Home Information Pack (Hip) from today.

New regulations to extend the controversial scheme to one and two-bedroom properties were introduced at midnight, bringing an end to the three-stage introduction process.

Hips are supposed to improve the sale of homes by cutting purchasers’ costs and by giving buyers an energy rating for the property.

Critics say the packs, which cost the seller between £350 and £550 are a big extra cost on lower value homes. Sellers have been rushing to beat the deadline, with the number of smaller properties on the market rising 39%.

The Royal Institution of Chartered Surveyors (RICs) said spreading Hips to smaller properties would drive even more first-time buyers from the market.

“Our research shows they knock speculative sellers from the market,” said a RICs spokesman.

“Twenty per cent of people put their homes on the market with no initial intention of selling, but then half of them change their minds when they get a good offer.

“Hips will put an end to that and shrink the market,” he argued.

Properties with four or more bedrooms have needed a HIP since August, while those with three bedrooms were covered by the law a month later.

House prices have fallen for a fourth month in a row, according to the latest survey from the Royal Institution of Chartered Surveyors (RICS).

Of the Chartered Surveyors questioned, 40.6% more reported a fall in prices rather than a rise in the three months to November, compared with 23.4% October.

The figures are the most negative since May 2005 when 49% more Chartered Surveyors reported a fall than a rise.

Surveyors said that a sustained weakness in demand, combined with loosening supply conditions was resulting in a greater stock of property on surveyor’s books, with stock of unsold property rising 8.7%.

RICS spokesman Jeremy Leaf commented: “It is clear that the housing market continues to feel the strain of depressed market conditions.

“The recent credit crunch continues to hit confidence in the market, with Chartered Surveyors feeling the most pessimistic about price expectations since 1998.

“However, while underlying economic fundamentals remain sound and the labour market remains strong, large falls in prices remain unlikely.

“Employment would have to fall sharply before enough supply entered the market to create a significant dip.”

The Bank of England cut interest rates for the first time in more than two years on Thursday, by quarter percentage point to 5.5%.

The decision had been almost too close to call as the Bank’s key policymakers faced the dilemma of cutting rates to buoy the faltering economy and holding rates to keep inflation in check.

Michael Coogan, Director General of the Council of Mortgage Lenders, said: “A reduction in interest rates is exactly what the market needs and will benefit consumers.

“This will reduce the risk of payment shock for the 1.4 million borrowers coming off fixed rates in the next year.”

Halifax and Nationwide said they would pass the 0.25 percentage point reduction on to borrowers from Jan. 1, reducing their standard variable mortgage rates to 7.5 per cent and 6.99 per cent, respectively.

That put pressure on other lenders to follow suit, and First Direct later said it also would cut its rate to 6.5 per cent with immediate effect. Other banks said their rates were “under review.”

Economists are predicting two further interest rate cuts in February and May.

House prices fell for the third consecutive month in November, dropping by 1.1%, according to latest figures from the UK’s biggest mortgage lender.

Halifax said it was the first time prices had fallen for three consecutive months since early 1995, while it was the biggest monthly drop recorded since December last year.

The average house cost £194,895 in November compared with £197,248 in October.

Martin Ellis, Halifax chief economist, said: “The housing market has slowed in recent months as the increase in interest rates between July 2006 and July 2007 has taken effect. Higher mortgage repayments and falling real earnings have put pressure on households’ income, resulting in a slowdown in both house price growth and activity.”

But he added: “The UK economy is in sound shape. Strong market fundamentals, a structural housing supply shortage and pent-up demand from a large number of potential first-time buyers will support house prices, preventing a sustained and significant fall.

The figures, come as the Bank of England’s Monetary Policy Committee begins its two day meeting, raising pressure for an interest rate cut tomorrow.

But the MPC is still expected to keep interest rates on hold at 5.75 per cent due to worries about inflationary pressures.