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House Prices Start to Fall 2006-07-06

Posted by clype in Money, Statistics.
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UK house prices fell 1.2 per cent in 2006-06, taking infation for the first half of 2006 to 4.5 per cent, according to figures released today by the Halifax.

The Halifax’s chief economist Mr.Martin Ellis, said that he expected sound fundamentals, underpinned by a strengthening economy, high employment and low interest rates, to continue to support housing demand over the second half of 2006

‘The annual rate of house price inflation, however, is expected to ease, partly because the corresponding figures last year were strong. Pressure on householders’ finances from utility bill and council tax rises, combined with speculation of higher interest rates, are also likely to constrain demand,’ he said.

House prices increased in all regions during the second quarter with the exception of Wales. The biggest rises were in Scotland (5.7 per cent), South West (3.8 per cent) and East Anglia (3.5per cent). The smallest increases were in North West (0.2 per cent) and North (0.9 per cent). Wales showed a slight fall (-0.8 per cent), reflecting the increasing affordability difficulties for buyers in the Principality.

Halifax said the pick-up in house price inflation in London and the South East over the past year contributed to a slight increase in the ratio between prices in the south and north in 2006 Quarter 2. This follows four years of almost continuous decline in the ratio, tentatively suggesting that the north/south divide is at, or slightly passed, its low point in the current cycle. The average property price in the south stood at 1.58 times the average in the north in 2006 Q2 compared with a peak of 2.19 times in 2002 Q2.

The data showed the level of activity moderating in recent months. The number of mortgage approvals to fund house purchase during 2006-03/2006-05 was down 4 per cent compared with the preceding three months after adjusting for seasonal factors. Property transactions in ‘England & Wales’ fell for the second consecutive month in 2006-05 on a seasonally adjusted basis.

Southern England -– Greater London, South East, South West and East Anglia — accounted for two-fifths of the overall rise in UK house prices in the first two quarters of the year. This is significantly different to 2005 when rising house prices in the south contributed less than one-quarter to the increase in UK house prices.

The pick-up in house price inflation in Greater London and the South East over the past year contributed to a slight increase in the ratio between prices in the south and north1 in 2006 Quarter 2. This follows four years of almost continuous decline in the ratio, tentatively suggesting that the north/south divide is at, or slightly passed, its low point in the current cycle. The average property price in the south stood at 1.58 times the average in the north in 2006 Quarter 2 compared with a peak of 2.19 times in 2002 Quarter 2.

The ratio between the average house price and that in Greater London has widened for most regions over the past year with the main exceptions of Scotland and Northern Ireland. The rapid rise in prices north of the border over the past few years means that prices in the capital are now 2.18 times the average in Scotland compared with almost 3 times in 2002 Q2.

  • The number of loans approved for house purchase –- a leading indicator of housing transactions -– in the first five months of 2006 was 28 per cent higher than in the same period of 2005, according to ‘Bank of England’ figures. The level of activity, however, appears to have moderated in recent months with the number of mortgage approvals during 2006-03/2006-05 down 4 per cent compared with the preceding three months once seasonal factors are taken into account.

A combination of factors, however, is expected to cause activity and house price inflation to ease over the remainder of 2006. Substantial increases in utility bills and above inflation council tax rises are putting pressure on householders’ finances with the majority of the impact of these increases yet to be felt. Recent upward movement in the pricing of fixed rate mortgages and mounting speculation of higher interest rates are also likely to constrain demand. Additionally, the ongoing historically high level of house prices relative to average earnings will curb housing demand.

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