Figures from the Halifax House Price Index show house prices increased by 1.2% in September, and 1.8% in Q3.
The annual rate of house price inflation, at 3.0%, is significantly lower than the 20.5% recorded in 2004 Q3.
The latest Bank of England figures 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 the Royal Institution of Chartered Surveyors 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 the fastest pace since January 2004. Other estate agents, including Halifax Estate Agents, have also reported a pick-up in activity in recent months.
The biggest house price rises in Q3 of 2005 were in the North (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.
There were house price falls in Q3 in the South-West and the East Midlands with declines of 1.4% in both regions.
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%). Four regions have experienced small falls during the last 12 months: East Midlands (-0.4%), East Anglia (-0.8%), South-East
(-1.1%) and South West (-1.5%).
Halifax calculates that a record of more than one million mortgage loans were taken out on fixed rate terms in 2003, 80% higher than in 2002. The number of fixed rate loans peaked in 2003 Q3 when its estimated that 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 ratio, according to Bank of England statistics.
The estimated 165,000 home owners who took out a two-year fixed rate mortgage in the final quarter of 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 estimated 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 around 60 (700 a year) if they switched to a new two-year fixed rate product, according to Halifax calculations. (Borrowers who took out a two-year fix in August and September 2003 are likely to have experienced little change in monthly payments.)
The turnaround over the past few months in the financial position of those borrowers who took out a two-year fixed rate mortgage in 2003 means that these home owners are no longer exerting the constraint on housing demand that they were earlier in the year.
Martin Ellis, chief economist at Halifax, says: “House prices increased by 1.2% in September and by 1.8% in Q3. 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 house price 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 England’s 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.”