UK Housing market update
House prices in the three months to July were 0.5 per cent higher than in the previous three months. This was the first increase in this key measure of underlying price movements for 14 months. Prices rose for the third consecutive month, increasing by 0.3 per cent in July.
As a result, the average UK house price in July was marginally higher (0.7 per cent) than at the end of 2010 on a seasonally adjusted basis, at £163,981.
The number of mortgages approved to finance house purchase – a leading indicator of completed house sales – increased by four per cent between May and June to 48,421; the highest monthly total since May 2010.
Despite this encouraging rise, the industry-wide number of approvals remains within the range of 45,000-50,000 per month where it has been since the beginning of 2010.
Approvals in the second quarter were unchanged from the previous quarter on a seasonally adjusted basis.
Overall, there has been little change in either the level of house sales or the number of properties on the market for sale since late 2010.
These steady market conditions have helped to stabilise house prices in 2011 following last year’s modest decline.
This pattern is expected to continue over the rest of the year with little genuine direction in either house prices or sales.
Sustained low interest rates and a slowly improving economy should help to support demand in the face of pressures from weak earnings growth, relatively high inflation and higher taxes.
Expectations in the financial markets regarding future interest rate levels have changed dramatically in the last few months as increasing evidence of continuing economic fragility have reduced the likelihood of near-term rate hikes.
This has reduced “swap” rates – the benchmark used by lenders for pricing fixed term mortgages.
As a result, fixed term rates have been reduced and are now at the lowest levels on record with, for example, ten lenders now offering five year fixed rates below four per cent.
Such low rates are likely to stimulate greater remortgage activity.