The Halifax House Price Index has highlighted an increase in house prices this month, and house price inflation rate that is lower than the same time last year.
Martin Ellis, chief economist at Halifax, says: House prices increased by 1.2% in September and by 1.8% in the third quarter. Although this was the biggest quarterly rise since 2004 Q3, the annual rate of house price inflation at 3.0%, was significantly below the 20.5% recorded in 2004 Q3.
The pick-up in monthly inflation in August and September is consistent with the rise in market activity over the past few months.
Healthy household income growth and historically high levels of employment are supporting the housing market and the Bank of Englands decision to cut interest rates in August also appears to have given the market a boost.
Nonetheless, the reduction in economic growth this year and the continuing high level of house prices in relation to average earnings are expected to constrain housing demand and prevent a sustained surge in house prices.
Latest figures released by the Bank of England show the number of mortgage approvals to fund house purchase increased by 8% in August. The number of loans at 107,000, on a seasonally adjusted basis was 15% higher than in August 2004. This was the first time in 2005 that approvals have been higher than a year ago.
The latest monthly report from RICS also recorded an increase in completed property sales for the second successive month in August. In addition, new buyer enquiries rose for the third consecutive month, up at least the fastest pace since January 2004. Other estate agents, including Halifax, have also reported a pick-up in activity in recent months.
The biggest house price rises in Q3 2005 were in the North, at 6.6%, Northern Ireland, 4.5%, and the North-West 3.9%. Prices in Greater London rose by 3.8% following four successive quarterly falls in the capital.
However, the annual rate of house price inflation has slowed significantly in all the regions of Britain over the past 12 months and is now in single figures throughout the mainland.
The biggest gains in house prices over the past year have been in the North-West 9.1% and Yorkshire and the Humber 8.0%. There have been four regions that have experienced small falls during the last 12 months. They are East Midlands, -0.4%, East Anglia,
-0.8%, South-East, -1.1%, and South-West has had a fall of 1.5%.
Halifax calculates that a record of more than one million mortgage loans were taken out on fixed rate terms in 2003. This is an increase of 80% from 2002. The number of fixed rate loans peaked in 2003 Q3 when Halifax estimate the over 250,000 borrowers took out a two-year fixed rate mortgage as rates on these products went below 4% on average, for a maximum 75% LTV ration.
The estimated 165,000 home owners who took out a two-year fixed rate mortgage in Q4 2003 are likely to benefit from reduced monthly payments when the term of their mortgage expires in the current quarter provided that two-year fixed rates remain around existing levels.
This is in contrast to the estimate 450,000 home owners who took out a two-year fixed rate in the first seven months of 2003 who, on average, experienced an increase in monthly mortgage payments of approximately 700 a year if they switched to a new two-year fixed rate product.
The turnaround over the past few months in the financial position of those borrowers who took out a two-year fixed mortgage in 2003 means that these homeowners are no longer exerting the constraint on housing demand that they were earlier in the year.