Home.co.uk
Home.co.uk

News: House prices 'fight back'

Mon, 26 Nov 07

Monthly house price growth has recovered from last month’s dip, according to the Assetz House Price Watch...

The five major UK house price indices show an average of 9.7% annualised growth for the twelve months prior to October 2007. This shows a 0.2% decrease in the rate of growth from the previous month (9.9%) and a 0.8% increase since October 2006 (8.9%). See Graph 1.

 

A correction in data from Rightmove in October, as the industry settled down following the introduction of HIPs, has seen annualised average house price growth stabilise at 9.7%. This shows a decrease of just 0.2% on September, when Rightmove recorded an exceptional drop in growth as the introduction of HIPs continued to distort the market. As expected, Halifax and FT continued to record falls in annualised growth due to the strong monthly gains during autumn 2006. Assetz predicted that this would be the case and expects annual growth to level out at around 8 - 9%.

The Bank of England misses another opportunity

The Bank’s Monetary Policy Committee (MPC) by-passed another opportunity to offer some reprieve to homeowners by opting to maintain rates at 5.75% for a fourth consecutive month in early November. The possibility of future pressure upwards on inflation took precedence over the clear and present danger currently facing the UK economy from the continuing effects of the credit crunch.

Now is the time for buy-to-let

A growing number of potential first time buyers are reported to be staying in rented accommodation, awaiting their opportunity to buy amidst the current uncertainty in the market. As a result, demand for rental property is strong and RICS has recently predicted that rental incomes will continue to grow strongly over the coming months (particularly for apartments), as the balance between supply and demand is altered and demand for rental property outstrips supply. This trend appears to refute claims that there is an oversupply of apartments in the UK, as it would be impossible to predict such strong rental growth if this was the case.

Average UK house price rises

The average house price in October 2007, taken from the average price provided by all five major indices is £214,795, up from £212,988 in September. This shows an increase of £1,807 in the value of the average property in the last month and an increase of £18,657 in the twelve months from October 2006, when the average price of a home was £196,138.

 

Stuart Law, Chief Executive of Assetz comments: “As expected, monthly house price growth has recovered from the dip recorded across the indices last month, and is back on track, showing an increase on the average price recorded in both September and August. Although house prices have begun to show signs of levelling out in recent months, the supply/demand imbalance, resulting from high levels of immigration and reluctance from sellers, continues to impact on the market.

“Annual house price growth continued to fall back slightly, but this was widely anticipated and should be little cause for alarm. We initially anticipated that an annual growth of 8% would be seen for 2007 and it now looks likely that our forecast was accurate. I would expect average house price growth across the indices to be around 5% in 2008, as the market continues to stabilise.

Extremely positive outlook

Mr Law continued: “While house price growth remains a strong prospect, people should not solely concern themselves with capital appreciation. In spite of recent speculation over a decline in the market, the outlook is extremely positive for those buy-to-let investors taking a medium to long term view, who will be assisted by lower interest rates anticipated for 2008 and an ever strengthening rental market. In light of this, I would expect to see some of the short term speculation over buy-to-let to be proved wrong over the coming months.

“Despite inflation temporarily now exceeding the Government’s 2% target, I would expect to see interest rates fall next month and further in 2008, as the Bank’s Monetary Policy Committee (MPC) is forced to take action in light of a slightly slowing economy. As a result, I believe we will see interest rates fall to 5.25% by December next year. Our previous assertion that 5.0 - 5.25% was a neutral rate for the UK economy now seems to have been taken on board by the MPC, which clearly admits it has overshot in its run of rate rises during the past year.”

Back to: News Index