Our recent house price index showed that house price growth for the year to date remained relatively...
Our recent house price index showed that house price growth for the year to date remained relatively measured and will continue to be so. On a national basis, we expect the final figure for house price growth in 2005 to be about -2%.
The Bank of England Base Rate cut in August is expected to help underpin the market, keeping mortgage repayments in line with historical averages as a percentage of salary. We predicted that the Bank of England Base Rate would finish the year at 4.25%, and with many indicators suggesting there might be a further reduction we still expect this to be the case.
Speculation remains about a 1990s-style housing market fall, but this is highly unlikely. During previous economic cycles, downturns in the residential property market have been caused by a combination of recession, steeply rising unemployment and significant rises in interest rates.
The current economic fundamentals and housing market are very different to the early 1990s: UK plc is in good shape, there are high levels of employment and interest rates remain at historically low levels.
Although the market has cooled over the past year, we need to remember that the levels of house price growth seen in previous years were extraordinary, and much higher than any historic average. Since January 2000 the average UK house price has almost doubled (house price inflation between January 2000 and August 2005 was 96%).
Encouragingly, market activity is improving somewhat. The number of mortgage approvals to fund house purchase continued its upward trend in July, according to the latest Bank of England figures, with the number of loans 26% higher than in November 2004 on a seasonally adjusted basis. Completed sales rose in July after four months of stagnation and there was an increase in new buyer inquiries for the second consecutive month, according to estate agents.
When Halifax issued its economic forecast for 2005 we stated we expected earnings to outstrip house price growth for only the second time in 10 years. As earnings continue to grow the affordability constraints experienced within the market will reduce, allowing both first-time buyers and those wishing to trade up to make a purchase.
House price inflation will not be uniform across the UK. We expect the north/south divide to narrow further. We predict the average house price in the south will be 1.6 times as high as in the north at the end of 2005, compared with 1.7 times in 2004.
There is still a shortage of good- quality housing in many areas of the UK. This lack of affordable good- quality housing will also underpin the market. Although new developments and initiatives designed to reduce this shortage have received much attention recently, no short or even medium-term panacea exists.
UK base rates at 4.25% by end of 2005.
House prices to fall by 2% during 2005.
Housing shortage underpins prices in the medium term.
Partner Insight: For Blackfinch, the arrival of its IHT portfolio services was a 'natural evolution' in the group's offering and points to an established track record of returning cash to investors.
Senior Managers Regime
Interest rate outlook unchaged
FCA made demands last week