Nationwide Real House Price Index now up 7 consecutive months

19 October 2009

Both figures must come in line at the end of any 12 month period and the seasonally adjusted figure next month is likely to be adjusted upwards by 0.3-0.5% from the real figure.

This is the seventh consecutive month the real house price index has increased since bottoming out in February
October tends to be one of the peak months for housing transactions and if that trend is repeated this year it will be a good test for the market to see if the index continues rising on greater activity. The longer prices keep rising the more people who have been unable to sell at the lower prices due to having insufficient equity for the deposit on a new property will be able to move. This will help levels of activity but most of these sellers will also be buyers and so the impact on prices of these extra properties coming on the market is likely be modest.

The table at the end of this post is self explanatory and, based on the Nationwide House Price Index, I now expect house prices to record an increase of 7.5% in 2009, rather than falling 5% as I predicted at the end of last year. I also expect prices to keep rising next year, but at a slower pace. In particular there is an obvious incentive for buyers in the £125,001 - £175,000 range to buy this year in order to avoid paying stamp duty land tax. Although the impact of this is unlikely to be large there will be some purchases this year which otherwise would not have taken place until next year.

Although mortgage supply is still constrained, especially at the higher LTVs, this week we have at last started to see some real competition from lenders, albeit primarily for lower LTV business. Woolwich, Northern Rock, Abbey, Alliance & Leicester, Principality and Coventry have all announced cheaper deals and Northern Rock has today upped its game further with the announcement of 3 and 4 year fixed rate intermediary exclusives up to 70% LTV from Monday.

The 4.89% fixed rate to 31/12/13 is market leading and the 4.39% fix to 31/12/12 is extremely competitive. Cheaper mortgage rates should help to sustain the housing market, although if house prices continue rising at the current rate the Bank of England will start to get worried.

This activity in the mortgage market has been encouraged by 3 month Libor stabilising just above Bank Rate at 0.55% and swap rates continuing to fall sharply following the MPC’s decision in August to extend Quantitative Easing by £50bn. 2 year swaps hit a new all time low of 1.75% this week and 5 year swaps closed today at 3.16%, compared to 3.75% the day before the August MPC meeting.