Residential property prices in the UK are set to fall in the next six months as the latest house price index shows they dropped 0.5% in July.
The much respected property price index from the Nationwide shows that prices fell by 0.5% in July and the annual rate of house price inflation fell from 8.7% to 6.6%. This is the first price fall in the Nationwide index since February.
The quarter on quarter rate of change, a smoother indicator of the near term price trend, fell from 1.7% in June to 1.3% in July, significantly below the peak of 4% reached in September 2009.
Meanwhile, the latest index from the UK Land Registry confirms that until now prices have been easing upwards. The figures, based on actual sales, show that in June prices were just 0.1% above those in May.
The figures are not a huge surprise as most analysts have been predicting a slow down in the second half of 2010. But according to Lucian Cook, director of Savills residential research, the fall will not be as great as some have been estimating.
‘So far in 2010, demand from buyers has made little progress in building upon the recovery seen during much of 2009. Despite the introduction of a second stamp duty holiday for the vast majority of first time buyers and record low interest rates, the number of properties changing hands across the UK is still running at only half the levels seen prior to the financial crisis and recession,’ said Martin Gahbauer, Nationwide’s chief economist.
‘A combination of restrictive credit conditions and uncertainty about the future economic outlook continues to limit the pool of buyers to those with relatively large financial resources. Many potential buyers still lack the confidence to purchase their first home or trade up when faced with uncertainty over future income and employment prospects,’ he explained.
Cook said there is no doubt that the UK market is slowing and this is in stark contrast to 3.8% growth in the same three-month period last year. Lending is also down with this week’s figures from the Bank of England showing that mortgage approval numbers for June this year were 3.6% lower than in June 2009 and that mortgage approvals in the first six months of the year were over 10% lower than in the second half of last year.
‘This clearly tells us that we still only have a partially functioning market. Not only have mortgage constraints not lifted, though buyer sentiment has weakened in the face of an uncertain economic outlook,’ said Cook.
‘This evidence all raises the question of price falls in the second half of the year and seems to have drawn some of the house price doomsters back out of the woodwork.
Our view is that house prices will fall over the next six to nine months but the extent of those falls is likely to be capped by the fact that, for those able to access the market, mortgage affordability is high,’ he explained.
Simon Rubinsohn, Royal Institution of Chartered Surveyors chief economist said its own research shows that new instructions are now outstripping new buyer enquiries. He points out that there will be regional variations in price rises and falls with London, the South East and Scotland showing the greatest level of resilience.