Home prices grind to virtual halt – but growth could resume

31st July 2014


House price growth came to a virtual dead halt in July, suggesting that the domestic property bubble has stopped expanding even if there are no current signs of a burst.

Figures from Nationwide show average UK values increased by just 0.1 per cent in July – although the range of statistical error suggest it could be zero or even a slight fall with much depending on individual locations. The year on year figure continues to show growth with a 10.6 per cent rise but this is a fall on the previous 12 month figure of 11.8%.

Some of the reasons are obvious.  Property prices cannot rise indefinitely. The Mortgage Market Review has made home loans more difficult to source. And – at the margins – there is evidence that household formation has slowed with more young people staying with their parents while new numbers from insurer LV= suggest a near doubling of homes renting out a spare room to a lodger over the past five years.

Robert Gardner, Nationwide’s Chief Economist, says: “The slowdown was not entirely unexpected, given mounting evidence of a moderation in activity in recent months.  Mortgage approvals declined by almost 20% between January and May to the introduction of Mortgage Market Review measures., and there has also been some softening in forward looking indicators, such as new buyer enquiries.”

And far from signalling a fall, Gardner believes there could be further upward price pressure over the next months.  He adds: “At least part of the slowdown in activity relates to the introduction of Mortgage Market Review measures. The modest rebound in mortgage approvals in June adds weight to the notion that the slowdown will prove temporary, though the underlying pace of demand remains unclear.  With the labour market strengthening, mortgage rates expected to remain low and consumer confidence rising, activity is likely to recover in the months ahead. “Over the longer term, the trajectory of house prices will remain crucially dependant on supply side developments. While there have been some encouraging signs that construction activity is picking up, the pace of home building continues to run far below most estimates of what would be required to keep up with household formation in the years ahead.”

While the property price increases are bad news for those struggling to buy a home, they are good news for taxpayers.  Receipts from Stamp Duty Land Tax are near their all-time highs in pre financial crisis 2007-08 exceeding £10bn over the past year, a near trebling of the  2009-10 figure. The London area, home to 15 per cent  of properties, contributed 42 per cent of the stamp duty take.  The average price across the UK is, the Nationwide calculates, £188,949 with London area values around twice that.

Housing affordability has pushed many more taking lodgings in private homes while the squeeze on incomes has seen many homeowners – including empty nesters whose children have moved out – rent out rooms in their homes.

According to home insurer LV= the number has doubled over the past five years.  Some 2.7 per cent now take in lodgers – compared with 1.4 per cent in 2009.  Demand for spare rooms is now so high that the typical householder takes just eight days to find a lodger.

They pay an average £3,003 a year –  £2,411 in the East Midlands, the lowest price zone up to a typical £4,145 in London.

These figures are within the £4,250 allowed tax-free by HMRC under its rent-a-room scheme, a figure that has remained unchanged for over 20 years.




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