Key Points
- House prices increased by 0.1% in June. Overall, UK house prices have been static in the first six months of 2005. As expected, the annual rate of house price inflation continues to slow, falling to 3.7% in June: the lowest since March 2001.
- This month annual house price growth fell below annual average earnings growth (currently 4.6%) for the first time since early 2001. Earnings are expected to continue to outpace house prices during the second half of 2005, causing the house price: earnings ratio to decline from its current level of 5.5 and, therefore, somewhat easing the affordability difficulties faced by first-time buyers.
- Regionally, the biggest house price rises in the second quarter of 2005 were in Wales (4.2%) and Northern Ireland (3.9%). As previously forecast, there were house price falls in some English regions: for example, East Anglia (-1.6%), the South East (-1.2%) and Greater London (-1.1%). These modest falls should, however, be viewed in the context of the substantial house price rises in all these regions over the past 10 years. Prices have risen by 207% in London, 180% in the South East and 174% in East Anglia since 1995 Quarter 2.
- The differential between the average price in the south and its equivalent in the north has narrowed by £10,000 over the past year with prices in the south £80,000 higher than in the north in 2005 Quarter 2. The gap is at its narrowest since the last quarter of 2001.
- The economic fundamentals underpinning the housing market are sound. Earnings growth is robust. The UK economy continues to grow with employment reaching another record high of 28.58 million people employed. Mortgage payments are very close to their long-term historical average as a proportion of income for new borrowers.
- Housing market activity has stabilised with some signs of improvement in recent months. The number of loans approved for house purchase increased for the fifth successive month in May and Halifax Estate Agents has seen a steady level of sales since February.
Commenting, Martin Ellis, chief economist, said: "House prices increased by 0.1% in June and the average UK house price was static over the first six months of 2005 as a whole.
"The annual rate of house price inflation continues to slow, falling to 3.7% in June: the lowest since March 2001.
"Housing market activity has stabilised following the sharp decline in the second half of 2004 with some signs of a steady improvement in recent months. The number of loans approved for house purchase increased for the fifth successive month in May, and Halifax Estate Agents has seen a steady level of sales since February.
"As previously forecast, there has been a marked slowdown in annual house price inflation in all of Britain's regions over the past 12 months and annual house price inflation is now in double figures in only Northern Ireland (26.9%) and Scotland (12.5%). Whilst the slowdown in house price inflation over the past year has been broadly based, there has continued to be a distinct north/south divide with more subdued, or falling prices, across southern England.
"The economic fundamentals underpinning the housing market are sound. Earnings growth is robust. The UK economy continues to grow with the number in employment at a record high, and mortgage payments are very close to their long-term historical average as a proportion of income for new borrowers."
The biggest house price rises in the second quarter of 2005 were in Wales (4.2%) and Northern Ireland (3.9%).
There were house price falls in four English regions: East Anglia (-1.6%), the South East (-1.2%), Greater London (-1.1%) and the North (-0.9%). These modest falls, however, should be viewed in the context of the substantial house price rises in all these regions over the past 10 years. Prices have risen by 207% and 180% in London and the South East respectively since 1995 Quarter 2, whilst there have been gains of 174% in East Anglia and 161% in the North during the same period.
While the slowdown in house price inflation over the past year has been broadly based, there has continued to be a distinct north/south divide with more subdued or falling prices across southern England (including the South West and East Anglia).
As a result, the differential between the average price in the south1 and its equivalent in the north1 has narrowed by £10,000 over the past year with prices in the south £80,000 higher than in the north in 2005 Quarter 2. This is £19,000 lower than in early 2003 when the north/south differential stood at a record £99,000 (2003 Quarter 1), and is the narrowest gap since 2001 Quarter 4.
This month, annual house price growth fell below annual average earnings growth for the first time since early 2001 with the 3.7% rise in house prices comparing with a 4.6% increase in earnings over the past year. Earnings are expected to continue to outpace house prices during the second half of 2005, causing the house price:earnings ratio to decline from its current level of 5.5. This would help somewhat to ease the affordability difficulties faced by first-time buyers.
Halifax says the UK economy remains in sound shape despite the slowdown in activity in the first half of 2005. Earnings growth is robust at an annual rate of 4.6%. Employment continues to increase, rising by 196,000 over the past year to another record high of 28.58 million people employed in the three months to April 2005, according to the latest ONS figures. It also commented that Interest rates are still at a level that ensures mortgage payments are very close to their long-term historical average as a proportion of income for new borrowers.
The index suggests housing market activity has stabilised following the sharp decline in the second half of 2004 with some signs of a steady improvement in recent months. For example, the number of loans approved for house purchase increased for the fifth successive month in May, according to the latest Bank of England figures. There were 96,000 loans in May (seasonally adjusted): 25% higher than last November's low of 77,000, but still 21% lower than in May 2004. Halifax Estate Agents has also seen a steady level of sales since February.
