March saw house prices fall by 0.6% - the biggest monthly drop since June 1995 says lender Nationwide in its latest monthly survey of the UK market.
The drop means the annualised rate of house price inflation has fallen to 7.9%, the first time it has been below 10% since June 2001.
Seasonal adjustments mean the nominal average price recorded actually increased by £1,000 in Nationwide’s index for March, taking the average house price to £153,876, while mortgage approvals are predicted to have rebounded to 84,000 in the month.
The lender says the rest of 2005 is likely to be marked by additional monthly swings between gains and falls in house prices. Nationwide has not changed its full year expectation for house prices to rise between 0% to 5% between January to December this year.
The additional slowdown in the market will contribute to more “breathing space” on interest rates decisions, the lender adds.
Although two members of the Monetary Policy Committee raised arguments for increasing the base rate at the March MPC meeting, the majority still felt risks of general inflation rising were low.
A continuing “gentle” slowdown in the housing market will reinforce the idea that interest rates do not need to go up in the short term, Nationwide’s group economist Alex Bannister says.
However there continues to be some risks to inflation, not least from developments in the US, and the markets continue to factor in an increase in rates by the summer.
The lender still believes there will be no crash in the market, rather that with economic fundamentals such as rates of employment and earnings growth at benign levels mean consumers retain a high level of confidence.
Measures on stamp duty announced in the recent Budget will have limited impact on the housing market in general, really only applying to areas such as Northern Ireland – where lower prices mean the proportion paying the tax will fall to 30% from 85% of transactions.
In London, the proportion affected by stamp duty falls to 91% from 99% under chancellor Gordon Brown’s move.
Annualised house price growth of 15.5% in Yorkshire and Humberside means the North retains its lead in the housing market, while London prices have gained just 3.8% in the year to March, Nationwide adds.
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