House prices rose just a fraction in August however recent pressure on energy prices may contribute to a further slowdown in the housing market, suggest economists at Nationwide Building Society.
Current take-up of housing stock suggests there is still demand for house purchases, in the summer lull, as house price inflation rose 0.1% in August to 18.9% annualised and the average UK house price stands at £153,743.
That said, Nationwide’s chief economist Alex Bannister he does indicate he expects it to slow considerably, as the building society now predicts the annual rate of house price inflation to December 2004 will close at 15%, as asking prices are falling slightly in the more expensive areas.
It had been anticipated the rise of Bank of England base rates would eventually lower house prices, however, Bannister now expects the climbing cost of energy price rises could to be the factor which tightens most household budgets, as the predicted increase in energy costs equate to further 25 basis points on mortgage rates for households with £100,000 mortgage.
"Rising global activity and concerns over supply drove the price of oil to record highs in recent weeks. At the same time other energy prices have also been rising. Some commentators have stated that these increases are likely to be inflationary and could result in higher interest rates,” says Bannister.
“Our view is that they are more likely to dampen consumer demand and could act as a further drag on the housing market. If expenditure on energy rose by around 10% by the end of the year as gas, electricity and petrol price increases filter through to the consumer, the average household will spend an extra £17 per month on energy. Based on the typical mortgage this is equivalent to an increase of around 0.25 percentage points on mortgage interest rates,” he adds.
Although there has been a marked slowdown in property inflation, houses in Wales, the North and Scotland are still selling at a slightly higher rate of inflation compared with London and the South East.
That said, there now appears to be some concern from Nationwide about the growing pressure of inheritance tax on many residential property owners, as the rise in their values means one in seven people have crossed the £263,000 inheritance tax threshold, compared with one in 15 in April 2000 when the IHT threshold was still £234,000.
Moreover, whereas 10 years ago only one on four first-time buyers paid stamp duty, that has now risen to three out of four people paying stamp duty on house purchase.IFAonline
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