House Price Growth Slows

House price growth in the UK has slowed in the past couple of months. Evidence suggests that recent interest rates are beginning to effect consumer spending.

Related to the fall in house Prices. The number of mortgages approved fell for the third month in a row. Mortgage approvals totalled 107,000 in April, down from 111,000 in March and the third monthly decline in a row.

Reports suggest, however, that further interest rates are still likely. This is because retail inflation is picking up. The CBI added that the sustained growth in sales volumes had encouraged a rising balance of retailers to put up prices compared with a year ago. The balance of +33 was the highest since May 1998.

Rate rise likely

Housing Market North East

The North East housing market has experience rapid growth in the past 10 years. House prices are still lower than elsewhere in the country; however, the gap between the north east and average UK house prices is narrowing.

Areas such as Newcastle are witnessing significant regeneration, housing is often a key to this regenerations.

For example, Bridging Newcastle Gateshead is one of 9 projects to create new, better homes in the north east. BNG is supported by the government and has received funding of £65 million to subsidies a 15 year programme. The purpose is to create great places to live in an area covering around 77,000 properties in Newcastle Gateshead.

Low Demand Housing

Despite rising house prices, pockets of Newacastle and the North East are characterised by low demand housing.

Low demand housing is predominantly in areas deemed unsuitable, unsafe; therefore, despite low prices demand for these houses remains low.


Areas of low demand housing are characterised by higher crime rates and high unemployment levels. They are often associated with the high rise tower block, built in the 1960s.

Therefore, the challenge for housing in the north east is not just to build new houses but replace the majority of the low demand housing. It is hoped that through schemes such as BNG residents can be incorporated into the planning process; it is hoped this will create more desirable areas to live, without the problems of the past.

Are House Prices set to Fall in the North East and Newcastle?

The rise in house prices in the North East, is mainly based on demand outstripping supply. The forecast for future house prices in this area are fairly similar to the rest of the country.

• Will House Prices fall in UK?

UK House Price Growth Slows

A new report by Hometrack shows that UK house price inflation is continuing to fall. House price inflation has now fallen to 6.7%

This is still higher than the rate of inflation (2.5%) however, it shows that the recent interest rate rises are starting to have an effect. Also, there is an increased number of first time buyers who are unable to afford house prices. House prices in London continue to rise at the fastest rate in the UK, with prices rising by 1.3%

The average cost of a home in England and Wales increased 0.6 percent from April, the least s

Today's Hometrack report, which is based on a survey of 3,500 real-estate agents, showed prices rose 6.7 percent from a year earlier. The number of buyers registering with a real- estate agent didn't increase on the month while the volume of sales rose 4.3 percent, less than half the pace of April, Hometrack said.

see full report at Bloomberg

What May Bring an End to the Housing Boom in the UK.

What May Cause House Prices to Fall in the UK?

1. An increase in interest rate. Interest rates have risen 4 times since last summer. Future interest rate increases are predicted. Quite often, it can take several months for interest rate rises to have an impact on consumer spending. Therefore, increasingly these interest rate rises will start to impact upon consumer spending.

Rising interest rates will have a very significant impact in the UK because:

• High levels of personal consumer debt.
• Mortgage Payments account for an increasingly high % of people's personal disposable income. This is in response to rising house prices and a wider range of more generous loans.
• Most UK homeowners have variable mortgages, rather than fixed rate mortgages.

2. Fall in confidence.

If people no longer expect house prices to rise, and start to fear they may fall then demand will fall. This is particularly important for buy to let investors and other speculative buyers.

3. Increase in numbers of First Time Buyers who cannot afford a mortgage.

Despite more flexible lending by mortgage lenders, many first time buyers find they are unable to get a sufficiently high mortgage to get on the property ladder.

4. Renting is becoming more attractive


5. Lower Economic Growth. Low wage growth will reduce affordability and confidence.


6. Slowdown in immigration and growth in number of households.

See also:

• Why UK Housing Market is subject to Boom and Bust
• House Price Collapse - Is it Likely?
• Will House Prices Ever Fall?
  

Oxford House Prices

Oxford, as a university town, has witnessed remarkable increases in house prices in recent years. House prices have risen above the national average to nearly £291,111 source

House price inflation in Oxford was 12% in the previous 12 months, this is close to the national average.

Reasons for rapid house price increases in Oxford include:

• Parents of Students Buying House for saving rent and capital gains.
• Limited land to build houses within Oxford ring road.
• Close proximity to London - 1 hour by train, good coach service to London.
• Booming local economy, with very low levels of unemployment

House Price Collapse in UK? is it likely

With interest rates set to increase in the near future some commentators argue this could be the signal for house prices in the UK to collapse either at the end of 2007 or in 2008.


In the US house prices have been falling significantly. The reasons for the fall in US house prices can be seen here: Fall in US house prices.

However there are various reasons why the UK Housing Market is different to the US housing market.

Why House Prices are unlikely to Collapse

1. Differences in Sub Prime Market.

The US sub prime market was more aggressive in its sale of "bad credit mortgages". Although the UK mortgage lenders have become less stringent they still retain more safeguards in checking a mortgage plan is payable.

2. Shortage of Supply in UK. Excess supply in US.

In the UK there is still a fundamental underlying shortage of housing. In the US there is a growing surplus of housing. The excess supply of housing is a consequence of the irrational exuberance generated in the housing boom of 2002-2005. There is an increase in the number of houses without owners.

3. Differences in Interest Rates.

US interest rates have increased from a low of 1% in 2003 to their current rates of 3.5% This has had a significant impact on increasing cost of mortgages. In the UK the increase in interest rates has been a smaller and more gradual process in last year UK interest rates have only increased by 0.75%

4. Population growth.

The UK is witnessing an increase in the number of households. This is caused by:

Immigration from Eastern Europe
Demographic Factors such as rising number of single people.
Aging population, increasing number of old people living alone.

Combined with a shortage of supply this explains a significant reason for increase in UK house prices.

Why Houses Will Fall

• Why House Prices may Fall

• When Will Property Prices Fall?

• Why House Prices may Keep Rising

• House Price Crash - views on UK housing market

How house prices can affect the Whole Economy.

House Prices have a significant impact on the National Economy

• House prices are the biggest component of household wealth.
• The number of homeowners in the UK has increased with a bigger % of people buying their house rather than renting.
  
• This trend has been helped by the sale of council houses in the 1980s.
  
• It was Mrs Thatcher’s desire to transform the UK into a property owning democracy. To a large extent this has been done. (78% houses are owned)

Rising house prices increase consumer wealth and are likely to be associated with an increase in mortgage equity withdrawal.
means people remortgage and take out a bigger loan against the value of their house. It means they have more money that they can spend and this leads to an increase in consumer spending and therefore Aggregate demand.

Rising house prices can also increase consumer confidence. It encourages people to take out other borrowings as they know that they can always release equity from the value of their house if necessary.

Therefore rising house prices can be instrumental in raising consumer spending and economic growth. Rising house prices can also be inflationary. This will occur if increasing house prices cause economic growth to be unsustainable. For example in the late 1980s rising house prices were a key factor in causing the inflationary Lawson boom of 1989. However rising house prices do not always cause inflation. If other components of economic growth are increasing at a slow rate, house prices may not cause inflation. For example between 2001-2007 house prices in the UK have been rising far quicker than the rate of inflation (which has remained in governments target of 1-3%)

Effect of Falling House Prices

Falling house prices usually have a more powerful effect than rising house prices.

People are used to rising house prices and the majority of homeowners don’t actually release the increased equity through remortgaging. However when house prices fall it can trigger a large fall in consumer confidence. People view falling house prices as a serious problem and in the past has been associated with reductions in consumer spending as people become much more risk averse.

For those who have recently remortgaged or bought a house falling house prices can lead to negative equity. Negative equity means the value of the house is less than the outstanding mortgage debt. This is a real problem for those who are struggling to meet mortgage repayments; there is no option to switch mortgage deals and reduce monthly payments.

Again the effect of falling house prices depends upon other variables in the economy.

For example falling house prices in 1991 was associated with a period of very high interest rates. Therefore homeowners were faced with a twin problem of high mortgage costs and falling house prices. If house prices fell in the UK in 2007 or 2008 real interest rates would likely be much lower. Furthermore the MPC would be likely to cut interest rates as falling house prices reduced inflationary pressures.

See also How House Prices affect economic growth and inflation in UK

See also Role of House Prices in determining Monetary policy

Price of London's richest homes soars 31% in a year

Bumper City bonuses and an influx of foreign buyers are driving up house prices in London's smartest areas at the fastest rate for 28 years, a report showed yesterday.

Estate agent Knight Frank said the average price of million pound-plus homes in prime central London areas such as Belgravia, Mayfair and Chelsea leapt by 2.6 per cent in February alone to stand a staggering 31 per cent higher than a year earlier. That is the highest annual rate of increase since 1979, and is triple that for the UK as a whole.

The Gatehouse, a penthouse in Uxbridge Street, Notting Hill, is one example of how prices at the top end of the market have soared. It was on the market two and a half years ago for £4.5m and failed to sell. It was put back on the market two months ago and was quickly snapped up for £6m, above guide price.

Liam Bailey, Knight Frank's head of residential research, said prices continued to be pushed higher by a chronic lack of supply. And while big City bonuses were another factor, he said the biggest boost had come from an increasing number of wealthy overseas buyers, especially from Russia, Italy, France, and the Middle East.

"Our forecast that prices in prime central London will grow by 12 per cent this year could well be an underestimate," he said. "Prices have already moved higher by 5.6 per cent in the first two months of the year and we expect that the next two to three months will see the strong market conditions remaining."


via

Rise in UK House Prices in Feb 2007

U.K. property prices accelerated for a second month in February as a shortage of homes for sale mitigated the impact of higher interest rates, a survey showed.

Asking prices rose 0.9 percent after an 0.5 percent increase in January, according to Rightmove, Britain's biggest Web site for property advertisements. A 9.7 percent rise in values in the City of Westminster fueled a 1.1 percent increase for London.

``Everything is turning around in days or weeks,'' said James Gubbins, agent at Dauntons realtors in the London borough of Westminster and Pimlico. ``The current level of interest rates isn't going to affect the market as it is at the moment. They'd have to move another percent.''

from: http://www.bloomberg.com/apps/news?pid=20601102&sid=aTCi8qTZoomk&refer=uk

Map of Average House Prices in the UK

Average House Prices in the UK widely tremendously. If you look at this map by Yahoo
House prices They can range from £63,000 average in the west of scotland to over £400,000 in London, the South East and Home Counties.

However the house price differential has narrowed somewhat in recent years. For example house prices in Northern Ireland have increased the most. This is due to the resurgence in the Northern Irish economy and therefore housing market.

Are UK House Prices set to fall?

There are several factors that point to UK house prices falling in 2007 or 2008

1. House prices have been increasing at a rate far higher than both inflation and earnings. This means that the affordability of buying a house has decreased. This is especially the case for people in their 20s who have not bought a house before.

2. High levels of debt in the UK. UK consumers are currently experiencing high levels of debt, this is both from credit cards and mortgage payments. Therefore a rise in interest rates has a big impact upon people’s disposable income. Even the small increases in interest rates are therefore likely to cause a big fall in demand for housing.

3. Buy to Let Speculators could start selling. To understand why UK house prices may fall it is important to understand why UK house prices have risen so much. Part of the reason is that Investors have been buying houses to let. This means they get income from renting to pay the mortgage but the main motivation is that they hope to make capital gains. With rising house prices, other investors jump on the bandwagon and start buying. This magnifies the increase in house prices. However when house prices start to slow down these buy to let investors will sell, causing overall demand to fall.

4. The renting market has started to slow down. Rents are not rising by the same rate as house prices. This makes it more likely that buy to let investors will not remain attracted to the UK housing market.

5. Core inflation is higher than the government’s target. Measuring inflation using the old RPI measure, inflation is currently running at about 4%. This means it is likely interest rates may have to continue rising in this year. Higher interest rates of course push up the cost of mortgages and therefore cause demand for houses to fall. UK house prices are therefore susceptible to any future rises in interest rates.

Myths of UK Housing Market

A look at some of the myths of the UK Housing Market including whether prices will always keep on rising in hotspots like London? Will house prices ever fall?

First TIme Buyers look abroad

With UK house prices out of the reach of many first time buyers in the UK. There is an increasing trend for first time buyers looking at the possiblity of buying abroad. House prices on the continent are significantly cheaper and offer a way to get on the property ladder. In some countries house prices have been rising sharply in recent years.

However it is worth remembering that housing market in other countries is not driven by the same home ownership culture. In France and Germany renting a house is more popular. Also there is not the same shortage of supply, therefore it is less likely that house prices will perform the same as in the UK.

See first time buyers at the Times

UK House Prices in 2007 to Rise by £12,000

The Centre for Economics and Business Research (CEBR) predicted that the value of the average house would jump by nearly 8 per cent from £179,500 to £193,000 in 2007.

This is despite recent rises in interest rates and fears that first time buyers are being priced out of the market. Continued house price rises are due to:


The strong growth in earnings in the city.

Shortage of Supply of housing

Real interest rates are still relatively low

Strong Economy

Banks willing to give bigger loans to first time buyers, through increased use of interest only mortgages

However not all economists agree with this.

UK House Prices

Hi and welcome to this blog about UK house prices. This blog intends to look at trends and prospects for the UK Housing market. At the moment there are many different opinions about the prospect of house prices in the UK for the next couple of years. It always worth remembering the experts get it wrong.