House prices increased by just 0.4% in August – making it the third month in the last four in which house prices have grown by less than 0.5%.
In addition, the three monthly increase in house prices – a good indicator of the underlying trend – has fallen from 4.5% in March to 1.6% in August.
The annual rate edged higher to 11.4% in August from 11.2% in July. The annual rate should decline over the coming months as the strong monthly house price gains last summer and autumn drop out of the year-on-year comparisons.
Mortgage approvals to fund house purchase in the three months to July were 9% lower than during the recent three month peak during September to November 2006. The level of new buyer interest in purchasing a house fell for the eighth successive month in July, marking increasing caution amongst potential buyers.
However, a healthy economy and strong labour market continue to underpin housing demand. Gross domestic product (GDP) increased by 0.8% between Q1 and Q2, above its long-term average pace (0.7%). Employment continued to rise against the background of healthy economic growth in the three months to June with the total number 93,000 higher than in the previous quarter.
House price inflation is expected to ease over the rest of 2007. The increase in mortgage rates since last summer is having an effect on housing affordability and will bite further during the coming months. Negative real earnings growth in the first six months of this year and rising food prices is also reducing the income households have available for housing. Average earnings increased by 3.3% over the year to June 2007; 1.1 percentage points lower than the increase in the Retail Price Index over the same period (4.4%).
Employment continued to rise against the background of healthy economic growth in the three months to June with the total number 93,000 higher than in the previous quarter. The total number in employment stands at a record 29.1 million (Source: ONS)
Martin Ellis, chief economist at BoSI said: "Whilst the market remains robust, this provides further evidence that house price inflation has slowed since the beginning of the year.
“The downward trend in house price growth is expected to continue over the remainder of 2007 as the five interest rate rises since last summer have an increasing impact on household spending and housing demand. Sound economic fundamentals, high levels of employment and a shortage in the number of properties available for sale will, however, continue to support house prices."
