Key Points
- House prices rose by 1.4% in September and, on a quarterly basis, by 2.7% in Quarter 3. The quarterly increase was less than half the 6.1% gain in the second quarter: further evidence that house price inflation is slowing. The recent softening in the market is confirmed by figures relating to market activity with Halifax Estate Agents recording that the number of sales agreed in 2004 Quarter 3 was approximately one-third lower than in 2003 Quarter 3.
- The differential between the average house price in the south and the north has fallen to its lowest level for nearly 6 years in percentage terms. The average price in the south is now 1.68 times that of its equivalent in the north compared with a peak of 2.19 times in 2002 Quarter 2.
- All three regions of northern England have experienced a significant easing in price growth since the start of this year. The 5.0% rise in the North in Quarter 3 compared with a 9.7% increase in Quarter 1. In Yorkshire and the Humber there has been a fall in growth from 8.4% in Quarter 1 to 4.3% in Quarter 3, and the North West has recorded a slowing from 10.8% to 3.0% over the same period. This trend is likely to continue.
- The slowdown in house price growth in the third quarter was broadly based with the majority of regions recording a smaller rise in prices than in the second quarter. Wales and East Anglia were the two exceptions in Britain with both experiencing a bigger increase in prices in the third quarter.
- Over the past year, the biggest price rises have been in Wales and northern England - Wales (38%), North (37%), North West (31%) and Yorkshire and the Humber (27%). Prices in London (8%) and the South East (11%) have seen the smallest gains.
- London and the South East drove the bounce-back in prices in September. These two regions accounted for four-fifths of the 1.4% rise in prices nationally.
- The recent series of interest rate rises is expected to continue to curb demand over the coming months. These effects, together with the increasing difficulties that would-be first-time buyers face in getting onto the housing ladder, are expected to cause house price inflation to ease over the remainder of the year and into 2005. Prices are likely to slow most markedly in the north, contributing to slower UK house price inflation.
Commenting, Martin Ellis, Chief Economist, said:
"House prices rose by 1.4% in September following August's 0.5% fall. Despite the bounce back in September, the increase in prices during the third quarter was the smallest since the first quarter of 2001. The 2.7% rise in the third quarter was less than half the 6.1% gain in the second quarter, providing further evidence that house price inflation is slowing.
Most parts of the UK have experienced a slowdown in the pace of house price growth during the past three months. Significantly, whilst prices continue to rise more rapidly in the north, there are now signs that house price inflation in this part of the country is also slowing following a period of very rapid growth as first-time buyers increasingly face similar difficulties to those in the south in buying a home. We expect this trend to continue over the coming months, with prices slowing most markedly in the north, contributing to slower UK house price inflation.
The much stronger house price rises in northern Britain during the last three years have resulted in a significant narrowing in the north/south house price divide. The differential between the average house price in the south1 and the north1 has fallen to its lowest for almost six years in percentage terms. The average price in the south stood at 1.68 times its equivalent in the north in 2004 Quarter 3 compared with a peak of 2.19 times in 2002 Quarter 2. Although the differential between property prices in the capital and the UK is now in line with the average over the past 20 years, the north/south divide remains wider than it was ten years' ago when the average price in the south was only 1.35 times that in the north."
Broadly based slowdown in Quarter 3 ……….
Nationally, the 2.7% increase in the third quarter was less than half the 6.1% gain in the second quarter and the 5.5% increase in the first quarter of 2004. The increase in prices during the third quarter was the smallest quarterly increase since the first quarter of 2001.
The slowdown in house price growth was broadly based with the majority of regions recording a smaller rise in prices than in the second quarter. Wales and East Anglia were the two exceptions in Britain with both experiencing bigger increases in prices in the third quarter.
Whilst slowing, house prices rose in all regions of the UK during the third quarter with the exception of Greater London where prices fell by 0.6%. This was the third drop in prices in the capital since the start of 2000: the previous declines were in 2000 Quarter 2 (-2.3%) and 2003 Quarter 2 (-0.3%).
There was a clear north/south divide in the third quarter with London, the South East (1.1%) and the South West (0.9%) recording the smallest price rises in the quarter. Wales (6.5%), East Anglia (5.3%) and the North (5.0%) had the biggest price rises in the period.
The north/south divide is even starker on an annual basis. Over the past year, the biggest price rises have been in Wales and northern England: Wales (38%), North (37%), North West (31%) and Yorkshire and the Humber (27%). At the other end of the spectrum, prices in London and the South East have risen by 8% and 11% respectively during the last year.
Despite continuing to record strong price rises in the third quarter, all three regions of northern England have experienced a significant easing in price growth since 2004 Quarter 1. The 5.0% rise in the North in Quarter 3 compared with a 9.7% increase in Quarter 1. In Yorkshire and the Humber there has been a fall in growth from 8.4% in Quarter 1 to 4.3% in Quarter 3, and the North West has recorded a slowing from 10.8% to 3.0% over the same period.
The average price in Northern Ireland broke through the £100,000 barrier for the first time in the third quarter (to £106,445). Scotland remains the only part of the UK where the average price is below this mark (£99,904).
House price growth set to continue to ease over the coming months ……
It is becoming increasingly clear that the five interest rate rises since November 2003 are reducing housing demand. House prices have risen at a significantly slower rate over the past four months compared to earlier in the year. Bank of England figures also show a marked downturn in the number of mortgages approved to fund house purchase, indicating a fall in activity: a finding confirmed by other surveys. Halifax Estate Agents recorded that the number of sales agreed in 2004 Quarter 3, was approximately one-third lower than in 2003 Quarter 3.
The effects of interest rate changes, however, take time to be felt fully. Accordingly, we believe that the recent series of rate rises will continue to curb demand over the coming months. These effects, together with the increasing difficulties that would-be first-time buyers face in getting onto the housing ladder, are expected to cause house price inflation to ease over the remainder of the year and into 2005.
The market, nonetheless, remains underpinned by a strong labour market, favourable affordability when mortgage-servicing costs are compared with income and a shortage of housing supply. As a result, we expect house prices to continue to rise, albeit more slowly than in the recent past.
