Summary:
- House prices increased by 0.2% in July. Overall, there has been virtually no change in the average UK house price since the beginning of 2005.
- The annual rate of house price inflation continues to slow, falling to 2.3% in July: the lowest rate of growth since April 1996.
- Affordability is in line with the long-run historical average. Yesterday's 25 basis points cut in interest rates will reduce mortgage payments as a proportion of gross income for the average new borrower from 20% to 19%, the average for the past 20 years and well below the 34% peak in 1990.
- Recent figures provide further signs of a steady improvement in housing market activity in recent months. The number of loans approved for house purchase in Quarter 2 was 10% higher than in Quarter 1, according to the latest Bank of England figures. Estate agents confirm these signs of improvement with the latest monthly RICS survey reporting a modest rise in completed property sales since February 2005 and the first increase in buyer enquiries for five months in June.
Commenting, Martin Ellis, Chief Economist, said:
"House prices increased by 0.2% in July following a similar rise in June. Overall, there has been almost no change in the average UK house price since the start of 2005. The annual rate of house price inflation continues to slow, falling to 2.3% in July: the lowest rate of growth since April 1996.
"There have been further signs of a modest improvement in housing market activity over the past month. The number of loans approved for house purchase in the second quarter was 10% higher than in the first quarter, and estate agents have reported recent modest upturns in both completed sales and enquiries by potential homebuyers.
"The 25 basis points cut in interest rates will reduce mortgage payments as a proportion of gross income for the average new borrower from 20% to 19%, bringing it back in line with the average for the past 20 years and well below the 34% peak in 1990."
Housing market fundamentals also support demand. The UK economy remains in sound shape despite the slowdown in activity in the first half of 2005. Employees' earnings are growing at a robust pace with average earnings expected to increase by 4.5% in 2005 compared with 3.8% in 2004, reflecting the overall strength of the labour market. This pick-up in earnings growth is predicted to contribute to an increase in 'real' households' disposable income growth (i.e. after-tax and following adjustment for retail price inflation) from 1.9% in 2004 to around 2.5% this year.
The number of people in employment in the three months to May, at 28.57 million, was 184,000 higher than a year earlier, according to the latest ONS figures, underlining the strength of the UK labour market.
Recent figures provide further signs of a steady improvement in housing market activity in recent months. The number of loans approved for house purchase in Quarter 2 was 10% higher than in Quarter 1 (on a seasonally adjusted basis), according to the latest Bank of England figures. Despite this improvement, approvals in 2005 Quarter 2 were still 18% lower than in 2004 Quarter 2.
Estate agents also confirm these signs of improvement with the latest monthly RICS survey reporting a modest rise in completed property sales since February 2005 and the first increase in buyer enquiries for five months in June. These trends are in line with the experience of Halifax Estate Agents.
