There still seems to be no slowdown in house price inflation, according to the latest Nationwide house price update, as property values rose another 3.1% in February.
Average value of a UK property increased from £134,806 in January to £138,730 this month, says Nationwide’s group economist, Alex Bannister, placing yet more pressure on first-time buyers seeking affordable property.
This now represents an inflationary rise of 17.1% or an average £20,000 within the last 12 months and the strongest monthly increase since April 2002, at a time when many economists had thought the housing market would begin to slow down.
Bannister says the sudden push – compared with a 0.7% rise in January 2004 - is a little surprising, given affordability concerns, but may represent confidence in the employment market and a continued lack of property supply.
"Although economic conditions look unlikely to produce a more significant slowdown, additional housing taxes or hikes in existing housing taxes could knock confidence," says Bannister.
"Given that the level of first-time buyers is now at its lowest level for at least 20 years Nationwide has called on the Government to abolish stamp duty for houses below £150,000. In addition, we continue to call for caution on the part of lenders and buyers - they should not to be encouraged by current unsustainable property price growth to overstretch themselves."
Signs of a property recovery in the London, South-east and Home Counties region may also be on the horizon thanks to improvements in the labour market, suggests Bannister, which will in turn generate renewed interest in the housing sector and feed through as higher purchase prices over the coming months.
Given the low turnover of property, Nationwide suggests the UK property market is currently heading for a slowdown rather than a slump, as there were 370,000 approvals for house purchase over the last three months and at the highest level for over 10 years.
Mortgage payments will rise to 31% of income if base rates move to 4.75% during 2004, however, this is still considerably lower than the peak of the eighties boom period, when mortgage payments represented 38% of income.IFAonline
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