2
Oct
House prices 'back to 2008 level'
UK house prices have now recovered to the same level as a year
ago, according to the latest figures from the Nationwide. The
average price of a home last month rose by 0.9% to £161,816,
almost identical to September 2008. The building society said house
prices had now risen for five months in a row. However, the
nation's homeowners continued to pay off more of their mortgages
between April and June, according to the Bank of England. A further
£7bn was added to people's equity in the country's housing
stock, as homeowners accelerated the repayment of their home loans,
or put down bigger deposits when taking out a new mortgage. An
extra £29bn has now been added to the value of their stake in
the UK's housing wealth since the summer of 2008, a process
triggered by last year's sudden slump in house prices.
The further injection of equity has partly reversed the previous
trend, which saw home owners cashing in on the rising value of
their properties by expanding their mortgages to finance other
spending. More than £300bn was borrowed this way between the
start of the decade and early 2008.
'Headwinds'
The Nationwide warned that the recent house price increases were
unlikely to continue at their present rate, especially if more
properties come on to the market. "The most intense phase of the
recession and financial crisis has probably passed," said Martin
Gahbauer, the Nationwide's chief economist. "However, given that
the housing market still faces considerable headwinds in the form
of high unemployment, restrictive credit conditions and an
impending withdrawal of the stamp duty holiday, it would be
surprising to see house prices continuing to increase at the very
strong rate seen in recent months," he added. Figures from the
financial information company Moneyfacts show that mortgage
rationing is still in full force. The number of mortgage deals
available with between 0% and 40% deposits rose by just 4 in the
last month, to 1,290. Of these, the proportion requiring at least a
25% deposit has gone up up from 64% to 66%. By contrast, as late as
December last year, only 43% of the deals needed such a large down
payment. In addition, there were still 402 mortgage offers that
needed only a 10% deposit - now there are just 101.
Remaining cautious
The Nationwide said price rises had been particularly vigorous
in the past few months. In the three months to September they rose
by 3.8% compared to the average level in the previous three months
- the biggest rise on this measure since August 2004.
Mr Gahbauer said another reason to remain cautious about the
outlook for house prices was that turnover in the market was still
well below normal levels. The Nationwide calculates that housing
turnover - the percentage of private sector housing stock changing
hands on an annualised basis - now stands at almost 4%. This is
still significantly lower than the rate of between 7% and 8%
recorded before the downturn in the housing market. David Smith, of
property consultancy Carter Jonas, said anyone hoping to sell now
had a "window of opportunity" that might soon shut. "We have to
expect more turbulence ahead, specifically as a result of rising
unemployment and interest rates," he said. "This toxic combination
will bring more property on to the market as people struggle to
meet their repayments, which will apply downward pressure on prices
and potentially reverse the recent trend, at least for a time," he
added.
'Accidental landlords'
Another factor that might depress house prices again would be if
"accidental landlords" now decided to sell their homes instead of
letting them to tenants, the Nationwide said. "The downturn in
housing turnover over the last two years has prompted many home
movers to let their old properties out rather than sell," said Mr
Gahbauer. "The surge in so-called 'accidental landlords' has
limited the supply of property in the sales market and increased
the stock of homes available to let. "Over recent months the
increase in 'accidental landlords' seems to have tapered off, which
may indicate that some of this elevated rental supply is returning
to the sales market, with possible negative implications for house
prices," he said. The Royal Institution of Chartered Surveyors
(Rics) agreed. "The recent turnaround has been surprisingly
strong," said Brigid O'Leary, an economist at Rics. "An increase in
property for sale would improve transaction levels but could also
put some renewed downward pressure on house prices," she added.
BBC News. (2009). House prices 'back to 2008 level'. [Online].
Available from: http://news.bbc.co.uk/1/hi/business/8286028.stm
Accessed 2nd October 2009.