Residential property prices in the UK are up for the third month in a row despite the worst recession in decades adding to the hope that the market is stabilising even although turnover is low.
The latest figures from the Nationwide, Britain’s largest building society, show that property prices increased 1.3% in July, the fourth increase in five months, reducing the annual price fall to 6.2%, its smallest in more than a year.
Tight supply, pent-up demand and historically low interest rates had been enough to produce a bounce in prices despite the economic downturn, according to Martin Gahbauer, Nationwide’s chief economist.
‘There is now a reasonable chance prices could end the year slightly higher than where they started. Only a few months ago, such an outcome would have appeared unthinkable,’ he said.
The three-month on three-month rate of change, a less volatile measure, rose by 2.6%, its highest reading since February 2007. Even if prices remain unchanged for the rest of the year, the annual rate will continue to improve due to the sharp fall in prices at the end of last year, Gahbauer explained.
But not everyone is convinced that the worst is over and some are predicting that prices will fall again. ‘Given still very tight credit conditions, poor economic fundamentals and the fact that affordability ratios are moving back up now, we suspect that house prices are highly likely to suffer relapses over the coming months,’ said Howard Archer, chief UK economist at IHS Global Insight.
‘Much will clearly depend on whether or the economy can return to growth in the near term and then sustain recovery,’ he added.
Indeed the Nationwide is cautious about heralding a recovery. ‘If prices continue to increase at the rate of the last three months, they will soon rise to levels that would be noticeably out of line with earnings, rents and other fundamental determinants of housing valuations,’ Gahbauer said.
Indeed, a shortage of credit helped push property prices down by almost a fifth last year but all the main house price surveys are now pointing towards at least a stabilisation in prices.
The latest Land Registry data shows a 0.1% rise in June, its first increase in over a year. Nationwide’s main rival, Halifax, reported 0.5% drop in house prices last month after a surprisingly strong 2.6% rise in May. And figures from the Bank of England earlier this week indicated a rise in mortgage approvals, a key indicator the housing market was beginning to recover.
But experts also point out that getting finance to buy property is still very hard for most people. ‘These figures are positive news but it is still extremely difficult to arrange mortgage finance for the majority of prospective buyers. Unless you have a sizeable deposit, a good salary, a safe job and a faultless credit history, you’ll struggle to be accepted for a loan,’ said Andrew Montlake, director at independent mortgage broker Coreco.