-Key Points
House prices increased by 1.3% in July, which was very similar to the increase in June (1.2%). June and July's gains were significantly below the average monthly increase of over 2% during the preceding six months. The average UK house price rose above the £160,000 mark for the first time in July 2004 to £161,831. This is more than double the average UK house price of £78,055 five years' ago (July 1999).
Recent interest rate increases and constraints on first time buyer affordability are likely to temper house price growth over the remainder of 2004 and into 2005. The fundamentals remain in place, however. A combination of a strong economy, a healthy labour market, below average interest rates, along with longer- term supply shortages, should continue to underpin the market.
Other indicators seem to be stabilising. The number of mortgages approved for house purchases in June, while still above the five-year average, was down 14% from the peak in December 2003, according to the latest Bank of England data. Market surveys point to a moderation in buyer interest and an increase in the number of sales instructions. First-time buyer numbers also remain low by historical standards.
Over the year to June 2004, terraced properties were the best performing type of property with prices rising by 23%. Regionally, terraced house prices in Wales have risen the most and are up by 39%. By age of property, dwellings built before 1919 have seen the biggest price increases, with an average price rise of 23% over the year.
Detached houses are the most expensive property type and trade at a premium of 53% to the average property price. The premium is highest in percentage terms in London (110%) and the North West (70%) and smallest in East Anglia (35%) and Northern Ireland (42%).
Commenting, Martin Ellis, Chief Economist, said:
"House prices grew by 1.3% in July, which was very similar to June's 1.2% rise. The house price gains in June and July represent a clear step down from the 2.0% plus monthly price growth seen, on average, in the preceding six months. These figures, along with other housing indicators, suggest that the market may be slowing.
Added to this, there is likely to be a lag between when interest rate increases are announced and when their effects flow through to the housing market. It seems clear we have not yet seen the full impact of the Bank of England's recent rate moves on the property market. Accordingly, we expect the series of rate rises since late last year to continue to act as a brake on house price growth over the coming months.
The average UK house price broke through the £160,000 price barrier in July. As a result, there has been a more than doubling in prices over the past five years when the average price was below £80,000. While this is good news for existing home owners and has significantly strengthened many households' financial position, it also highlights the growing hurdles facing potential first times buyers as they try to purchase a property."
