House prices slip by 0.3% in February as activity continues to remain muted

5th March 2015

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UK property prices dipped 0.3% month-on-month in February bringing annual rate of increase down to 8.3% according to Halifax as activity continues to be constrained.

The statistics follow numbers released by Nationwide earlier this week which claimed house prices edged down by 0.1% taking the annual gain to a 17-month low of just 5.7%.

The overall evidence indicates that house prices are still being constrained by muted housing market activity compared to the early months of 2014.

IHS Global Insight chief UK and European economist Howard Archer however now suspects that activity is now gradually turning around after losing appreciable momentum from the early-2014 peak levels. He said: “We see activity it picking up modestly as 2015 progresses. This suspicion is supported by the Bank of England reporting that mortgage approvals for house purchases rose modestly for a second month running in January after being at a 17-month low in November.”

The Bank’s analysis showed that mortgage approvals rose to a four-month high of 60,786 in January from 60,349 in December and a low of 58,989 in November. Previously approvals had retreated for five successive months to November’s 17-month low from 66,091 in June 2014 and a 74-month high of 75,559 seen in January 2014.

Looking ahead Archer now forecasts that house prices will rise by around 5% in 2015, marking a dramatic fall on  the peak double-digit increases seen earlier in 2014 – 11.8% in June in the Nationwide’s case.

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. Furthermore, 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.”

Nevertheless, Archer added that any upside for housing market activity is expected to be pulled back by more stretched house prices to earnings ratios, tighter checking of prospective mortgage borrowers by lenders and the knowledge that interest rates will eventually start rising, albeit gradually.

“Many people may also be deterred from buying houses because they look pricey in a number of areas after recent sharp rises. According to latest data from the Halifax, the house price to earnings ratio stood at 5.14% in January, which was the highest ratio since June 2008  and above the long-term average of 4.11%,” he added.

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