House price rises drop to 17-month low as activity remains constrained

2nd March 2015

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February witnessed house prices edge down by 0.1% taking the annual gain to a 17-month low of just 5.7% according to numbers from Nationwide.

The latest update from the lender follows increases of 0.3% in January and 0.2% in December.

The year-on-year increase dropped from 6.8% in January, 7.2% in December and a peak of 11.8% in June – the best rise since the start of 2005.

Robert Gardner, Nationwide’s chief economist believes while the pace of housing market activity remains fairly subdued, the broader economic backdrop has remained supportive of housing market activity as mortgage rates remain close to all-time lows and consumer confidence remains buoyant as a result of a steady improvement in labour market conditions.

He said: “Indeed, the unemployment rate has continued to decline and earnings growth has picked up, particularly in inflation-adjusted terms, thanks in part to the sharp decline in energy prices.”

Howard Archer chief UK and European economist at 
IHS Global Insight however suspects that the weakening of housing market activity is now bottoming out and he predicts it to pick up to a limited extent in 2015.

His expectation is supported by the British Bankers’ Association reporting that mortgage approvals for house purchases rose – albeit modestly – for the first time in seven months to 36,394 in January after retreating to a 20-month low of 35,816 in December from 42,812 in June 2014.

But even so mortgage approvals during January were still down by 25.9% from the 76-month high of 49,122 seen during the same period last year.

Archer now anticipates that house prices will rise around 5% in 2015. This contrasts markedly with the peak double-digit annual house price increases seen earlier in 2014.

Archer said: “We expect support for housing market activity to come over the coming months from the recent Stamp Duty reform, very low mortgage rates, elevated consumer confidence, a pick-up in earnings growth and rising employment. Under the Stamp Duty Reform enacted in December, it is estimated that 98% of house buyers will now pay less stamp duty.”

In addition, he noted that it currently looks very possible that the Bank of England will hold off from raising interest rates until 2016. “It is also possible that limited supply of houses will provide support to house prices in some regions over the coming months,” he added.

Headwinds still however remain, in the shape of stretched house prices, tighter checking of prospective mortgage borrowers by lenders and the knowledge that interest rates will eventually start rising.

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