Market still strong, but price rises starting to slow

2007 Off To A Strong Start
In my last article I predicted a slowing down of the housing market this year. But latest figures from Halifax’s House Price Index reveal the market is still strong. Described as ‘buoyant’ and ‘thriving’, last year was, without doubt, a strong year for house price growth. The 10% growth in 2006 was achieved against forecasts of 4%, exceeding all expectations.2007 Off To A Strong Start
In my last article I predicted a slowing down of the housing market this year. But latest figures from Halifax’s House Price Index reveal the market is still strong. Described as ‘buoyant’ and ‘thriving’, last year was, without doubt, a strong year for house price growth. The 10% growth in 2006 was achieved against forecasts of 4%, exceeding all expectations.

And prices are continuing to rise this year, with the average house price in the UK reaching 192,314 for Q1 2007, up from 186,954 in Q4 20006. That said, signs of a slowdown are starting to appear. House prices have increased by 2.8% in Q1 – significantly below the 4.2% rise in Q4 2006.

So, prices are still increasing, albeit at a steadier rate than in the same period last year. House prices increased in all regions during Q1 2007. The biggest rises were in Scotland (7.5%), the South West (5.4%) and Wales (4.9%). The smallest increases were in the East Midlands (0.2%) and Yorkshire and the Humber (0.6%). The average house price is now above 150,000 in all regions bar two – the North, and Yorkshire and Humberside. What’s more, house prices in the South West, South East and Northern Ireland are now above 200,000, while the average price in London is quickly approaching 300,000, at 297,132.

Northern Ireland
Last year was Northern Ireland’s year. House prices rose a staggering 53% in Northern Ireland in 2006, a trend which has continued in 2007 with Northern Ireland reporting the fourth highest increase during Q1 (4.8%). Even now, Northern Ireland retains its title for the highest annual growth, clocking a 37% rise.

The rapid rise in Northern Ireland is down to a number of strong underpinning economic factors. On top of a strong local economy and high levels of immigration, there is continued high demand for properties from second-home buyers and buy-to-let investors that has significantly boosted prices.

The latest increase has taken the average price in Northern Ireland through the 200,000 barrier for the first time, to 206,495. In fact, Northern Ireland is now one of the most expensive regions in the UK, with only London, the South East and South West having higher average house prices. The increase has been phenomenal, especially when you consider that just two years ago Scotland was the only part of the UK with lower average house prices than Northern Ireland.

The average price in Northern Ireland has increased by 78% since Q1 2005, far outstripping the UK average gain of 18%. That said, we are sticking by our prediction that prices will grow more slowly in 2007.

Scotland
Scotland has reported the highest house price growth this quarter at 7.5%. This takes annual growth in Scotland to 22.4%, second only to the growth achieved in Northern Ireland. Despite consistently strong growth in Scotland, it remains the most affordable place to live, with an average house price of 138,655. Because of its affordability in relation to the rest of the UK, Scotland continues to attract first-time buyers and buy-to-let investors. The rental market in Scotland is boosted by its numerous universities and colleges, which make it attractive to property investors.

England
The South West recorded the biggest growth in Q1 at 5.4%, taking the average price in this area to 212,277. Looking at annual growth, Greater London (14.9%) has recorded the biggest increase in house prices in England. The smallest annual price rises have been in the North (5.6%) and East Midlands (5.8%).

East Midlands And The North
The smallest price changes in Q1 were reported in the East Midlands (0.2), Yorkshire and Humberside (0.6) and the North (1.6). The small increase in the East Midlands followed a strong rise in the previous quarter (4.6%), and Yorkshire and Humber saw an identical pattern. But the 1.6% increase in the North this quarter was an improvement on the 0.9% recorded in Q4 2006.

The average house price in the East Midlands is now 162,506, placing it above Scotland (138,655), Yorkshire and Humber (145,419), the North (148,167) and the North West (151,341) in the regional league table. House prices in Scotland have been the lowest in the UK for over five years but the gap is narrowing – the average price in the North is now less than 10,000 above prices in Scotland. The average price in the North West rose above 150,000 for the first time in Q1 to 151,341. Scotland, Yorkshire and Humber, and the North are the only areas where average prices remain below 150,000.

At the start of the year I predicted the North-South divide would widen in 2007, and that’s certainly the case so far. The most rapid price rises have been in London, the South West and the South East, with house price inflation accelerating in these regions over the past 12 months. By contrast, house-price inflation has eased in Northern England, with single digit rises in the three Northern regions over the past 12 months.

What Next?
The good news is that sound economic fundamentals and a shortage of housing continue to drive house prices up. New projections suggest the shortfall in new homes is more acute than previously estimated, with the number of new households projected in England revised upwards from 209,000 a year to 223,000. This compares with 160,000 homes built in England in 2006.

There are mounting signs, however, that increased pressure on household finances, partly due to the rise in interest rates, is dampening demand. The number of mortgage approvals in the three months to February was 7% lower than the preceding quarter, according to the Bank of England. And the latest Royal Institution of Chartered Surveyors monthly survey showed new buyer inquiries continued to fall in February, while newly agreed sales dropped for the first time since June 2005.

House prices have continued to rise this year, but at a slower rate than in recent months. For everyone in the mortgage industry, the news is good. As it gets harder for first-time buyers to get on the property ladder, and buyers find it harder to upgrade, lenders will need to become more innovative – giving intermediaries more chances to service their client’s needs.