House prices rose 1.0 per cent in August, but the overall increase in house prices over the three months from May to August was only 0.2 per cent compared with a 2.9 per cent rise in the preceding three months.
In addition, the annual rate of house price inflation eased to 8.2 per cent from 9.4 per cent in June. This pattern is expected to continue over the coming months.
The market is underpinned by sound fundamentals. A number of developments are nonetheless expected to constrain housing demand and moderate house price inflation over the remainder of 2006. Further substantial increases in utility bills will put pressure on householders' finances. Recent mortgage rate increases – both fixed rates and following the Bank of England's increase last month - are likely to dampen housing demand. Halifax expects the annual rate of house price inflation to ease to 5 per cent by the end of 2006.
Housing market activity is firm. The number of loans approved for house purchase in the three months to July 2006 is up 24 per cent compared with the same period a year earlier, according to the latest Bank of England figures. There is, however, evidence that activity has reached a plateau with the latest RICS survey reporting little change in completed property sales in July for the third consecutive month.
Commenting, Martin Ellis, chief economist, said: "August's increase was smaller than the 1.4 per cent rise in August 2005, contributing to a slowdown in the annual rate of house price inflation to 8.2 per cent from 9.4 per cent in June. We expect this trend to continue over the coming months with the annual rate easing to 5 per cent by the end of the year."
Sound fundamentals continue to support the market…..
The UK economy has strengthened during 2006 with the latest Office of National Statistics (ONS) figures confirming that GDP increased by 0.8 per cent in 2006 Q2. This was the biggest quarterly gain for two years and was above the long-term historical average of 0.6 per cent. Consumer spending growth accelerated from 0.3 per cent in 2006 Q1 to 1.0 per cent in Q2.
Employment continues to increase with a rise of 42,000 in the three months to June 2006. The total number in employment has increased by 240,000 over the past year to 28.9 million.
Signs that activity is levelling out……
Housing market activity remains firm with the number of loans approved for house purchase in the three months to July 2006 up 24 per cent compared with the same period a year earlier, according to the latest Bank of England figures. There is, however, evidence that activity has reached a plateau with the latest RICS survey reporting little change in completed property sales in July for the third consecutive month.
…but increasing constraints on demand are set to cause house price inflation to ease
The further substantial increases in utility bills that have been recently announced are expected to put pressure on householders' finances, curbing housing demand and causing consumer spending growth generally to ease.
Higher mortgage rates following the Bank of England's decision to raise official interest rates last month and the increase in fixed rates that has already occurred since the spring are likely to dampen housing demand.
These developments, combined with the historically high level of house prices relative to average earnings, are expected to constrain housing demand and moderate house price inflation over the remainder of the year.
