4 Sep 2008 09:00
Halifax House Price Index
| National Index | August 2008 |
| All Houses, All Buyers Index (1983=100) | ||
| Index (seasonally adjusted) 563.7 | Monthly Change -1.8% | Annual Change-10.9% |
| Standardised Average Price (seasonally adjusted) £174,178 | ||
Commenting, Martin Ellis, Chief Economist, said:
"House prices declined by 1.8% in August. A solid labour market, low interest rates and a shortage of new houses continue to support the market. The pressure on householders' income, together with the reduction in the availability of mortgage finance due to the global financial markets crisis, is resulting in both lower property prices and activity levels.
This week's announcement on stamp duty is a welcome development and will benefit a significant number of homebuyers, particularly outside the south east of England. Market conditions, however, will remain challenging."
| Key Points House prices fell by 1.8% in August. This was similar to the previous two months - June (-1.9%) and July (-1.7%) - but lower than in March (-2.5%) and May (-2.5%). House prices in August were 10.9% lower on an annual basis. The UK average price has returned to the level it was at in February 2006. A solid employment market and low interest rates underpin the housing market. Our research shows that the labour market is the key driver of the housing market. The number of people in employment increased by 20,000 over the three months to June compared with the previous quarter and by 384,000 over the past year to a record 29.56 million. House price to earnings ratio is declining. The house price to average earnings ratio - a key affordability measure - has fallen from a peak of 5.84 in July 2007 to 5.13 in June 2008. We expect a further decline as prices continue to soften. The temporary raising of the initial stamp duty threshold from £125,000 to £175,000 should reduce the stamp duty burden for a significant number of homebuyers, especially outside the south east of England. Almost a quarter of a million (230,000) homebuyers in England and Wales would not have paid stamp duty over the past year if the threshold had been £175,000 rather than £125,000. Significant regional differences in stamp duty burden. Increasing the lowest stamp duty threshold will benefit buyers in all regions, but will have a more pronounced impact outside the south east. For example, only 12% of total sales were below £175,000 in London over the past year compared to 75% in the North. |
Strong labour market supports the housing market
The labour market is the key driver of the housing market. The number of people in employment increased by 20,000 over the three months to June compared with the previous quarter and by 384,000 over the past year to a record 29.56 million.
Housing demand falls due to pinch on incomes, affordability levels and reduced mortgage availability
Higher food and fuel prices - which have increased by 12% and 17% respectively over the past year - have reduced the amount of discretionary income available to households. The pinch on incomes, together with the high level of average house prices in relation to earnings, has made it difficult for potential house purchasers to enter the market. In addition, the decline in credit availability resulting from the crisis in the financial markets is a further constraint on buyers. These factors are curbing housing demand, causing house prices and activity to fall.
Housing market activity declines further
The number of mortgages approved to finance house purchase fell by 6% from a seasonally adjusted 35,000 in June to 33,000 July and was 71% lower than in July 2007. (Source: Bank of England)
The number of new buyers interested in home purchase and the number of agreed sales both continued to fall in July, but the pace of decline slowed for the third successive month. (Source: RICS)
Annual house price inflation at -10.9% in August
The annual rate of house price inflation - measured by the average price over the three latest months compared with the same period a year earlier - was -10.9% in August. The UK average price has returned to where it was in early 2006.
House price to earnings ratio is declining
The house price to average earnings ratio - a key measure of housing affordability - has fallen from a peak of 5.84 in July 2007 to 5.13 in June 2008. We expect a further decline over the coming months as property prices continue to soften.
Stamp duty
The government's announcement this week that it is raising the lowest stamp duty threshold from £125,000 to £175,000 for a year from 3rd September will reduce the stamp duty burden for a significant number of homebuyers. This brings the lowest threshold broadly in line with the current average house price.
Almost a quarter of a million (230,000) homebuyers in England and Wales would not have paid stamp duty over the past year if the threshold had been £175,000 rather than £125,000. (There were a total of 475,623 sales below £175,000 over the four quarters from 2007 Q3 to 2008 Q2 with 245,414 below £125,000.)
In percentage terms, 49% of sales in the last year were below £175,000 compared with 26% below £125,000. Therefore, around a half of all sales would not have been potentially liable to stamp duty under the new criteria compared with one quarter under the previous £125,000 threshold.
First-time buyers (FTB), in particular, will benefit from the change to the stamp duty threshold. The average price paid by a FTB in Q2 2008 was £144,283 with an average stamp duty bill of £1,443. By comparison, the average FTB will pay no stamp duty over the next 12 months. The proportion of FTBs who would have paid stamp duty if the threshold had been £175,000 over the past year would have been 31% rather than the 60% of FTB purchases that were above the existing threshold of £125,000. We estimate that a threshold of £175,000 rather than £125,000 would have removed 80-90,000 FTBs from the stamp duty tax net over the past year.
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