Key Points
House prices rose by 1.0% in September.
The annual rate of house price inflation eased for the third successive month to 8.0%, the lowest rate since April 2006.
The nine English regions have experienced remarkably similar house price gains in the last 12 months with all regions experiencing rises of between 5.5% and 8.5%; the narrowest range recorded since the Halifax House Price Index began in 1983. Prices have risen most strongly in Northern Ireland (30%) and Scotland (14.5%) over the past year. All other regions have recorded single digit house price inflation.
Annual house price inflation in Greater London eased from 10.9% in Q2 to 8.5% in Q3, indicating that the boost to prices in the capital from this year's record high City bonuses has diminished.
The ratio between prices in the south and north increased marginally for the second successive quarter in 2006 Quarter 3, indicating that the north/south divide is beginning to widen again following four years of almost continuous narrowing.
There are signs that housing activity has reached a plateau. The number of loans approved for house purchase has stabilised at around 120,000 (seasonally adjusted) a month in the three months to August, according to the Bank of England. The latest RICS survey reported that completed property sales eased marginally in August for the second successive month.
Sound fundamentals, underpinned by a stronger economy and record high levels of employment, will continue to support a healthy housing market over the coming months. Higher mortgage rates and utility bills will put pressure on householders' finances, curbing housing demand. As a result, annual house price inflation is expected to moderate over the remainder of the year.
Commenting, Martin Ellis, Chief Economist, said: "House prices rose by 1.0% in September. The annual rate, however, eased for the third successive month to 8.0%, the lowest rate since April 2006. We expect increased utility bills and higher interest rates to curb housing demand over the coming months, causing annual house price inflation to ease between now and the end of the year."
Northern Ireland, South West, South East and North record biggest house price increases in 2006 Q3 ……
House prices increased in ten regions during the third quarter. The biggest price increases in the third quarter were in Northern Ireland (6.6%), South West (1.5%), South East (1.5%) and the North (1.4%).
There were modest falls in Yorkshire & the Humber and East Midlands (both -0.8%), reflecting the increasing affordability difficulties for buyers as a result of the very rapid rise in house prices in these parts of the country over the past few years. These small falls, however, need to be viewed in the context of a more than doubling in average house prices in both regions over the past five years. Indeed, occasional quarterly prices falls are a common feature of a slowing market with all the regions of England and Wales, except the North West, recording at least one quarterly decline in the past two years. The underlying trend, nonetheless, in all these regions has been of rising prices.
Even pace of house price inflation across English regions over the past year …..
The nine English regions have experienced remarkably similar house price gains during the last 12 months with all regions experiencing rises of between 5.5% and 8.5%; the narrowest range recorded since the Halifax House Price Index began in 1983. Over the past year, prices have risen most strongly in Northern Ireland (30.0%) and Scotland (14.5%). All other regions have recorded single digit house price inflation, ranging from 8.5% in Greater London to 2.9% in Wales.
Annual house price inflation in Greater London eased from 10.9% in Q2 to 8.5% in Q3, indicating that the boost to prices in the capital from this year's record high City bonuses has diminished.
North/south divide shows further signs of beginning to widen again ……
The ratio between prices in the south and north1 increased marginally for the second successive quarter in 2006 Quarter 3, indicating that the north/south divide is beginning to widen again following four years of almost continuous narrowing. The average property price in the south stood at 1.59 times the average in the north in 2006 Quarter 3 compared with a peak of 2.19 times in 2002 Quarter 2.
Activity may be levelling out……
Whilst housing market activity remains firm, there are further signs that it has levelled out. The number of loans approved for house purchase has stabilised at around 120,000 (seasonally adjusted) a month in the three months to August, according to the Bank of England. Additionally, the latest RICS survey reported that completed property sales eased marginally in August for the second successive month.
Stronger economy and healthy labour market to continue to support the market…..
UK economic activity has picked up in 2006 following the weakest growth for ten years in 2005. The latest ONS figures show that GDP increased by 0.7% for the third successive quarter in 2006 Q2. This is slightly above the long-term historical average of 0.6%.
The strengthening in the economy has underpinned the ongoing good health of the labour market with employment increasing by 220,000 over the past year, according to the ONS.
…but higher interest rates and utility bills expected to curb housing demand
Higher mortgage rates following the Bank of England's rate rise in August and the increase in fixed rates over the past five months are expected to dampen housing demand over the coming months. The recently announced increases in utility bills will also put pressure on householders' finances, further curbing housing demand. As a result, house price inflation is expected to moderate over the remainder of the year.
