Hx House Price Index-July2007

2 Aug 2007 08:00

HBOS PLC02 August 2007 Halifax House Price Index National Index July 2007 All Houses, All Buyers Index (1983=100) Index (seasonally adjusted) 643.8 Monthly Change 0.7% Annual Change 11.2% Standardised Average Price (seasonally adjusted) £198,915 Key Points • House prices increased by 0.7% in July. This is the fourth consecutive month that house prices have grown by less than 1.0%, confirming that house price inflation is slowing. • House prices increased by 1.3% between April and July. This was the smallest three monthly rise - a good indicator of the underlying trend - since August 2006. • Mortgage approvals to fund house purchase in 2007 Q2 were 8% lower than in 2006 Q4. The level of new buyer interest in purchasing a house fell for the seventh successive month in June. (Sources: Bank of England & RICS) • Homeowners who took out a fixed rate deals two years ago will face higher mortgage payments when they re-mortgage. A borrower with a £114,000 mortgage, taking out a two year fix in 2005 at 5.08%, faces an increase in monthly payments of around £65, or 10%, when the deal expires this year. The overwhelming majority of these borrowers are expected to be able to absorb the increase in payments as earnings and housing equity have risen in the past two years. • A healthy economy and strong labour market continue to underpin housing demand. The UK economy recorded an unprecedented 60th consecutive quarter of rising activity in 2007 Q2. Over the 15 years from 1992 Q3 to 2007 Q2, the level of real GDP in the UK increased by 53% compared with a 32% increase in the previous 15 years. • We have recently revised our house price growth forecast for 2007 from 4% to 6%. This upward revision largely reflects the greater upward movement in prices than expected during the first four months of the year. Pressure on householders' finances is likely to increasingly curb housing demand over the remainder of 2007, causing house price inflation to ease. Commenting, Martin Ellis, Chief Economist, said: "House prices increased by 0.7 per cent in July. This is the fourth consecutivemonth that house prices have risen by less than 1.0 per cent, confirming thathouse price inflation is slowing. We expect the downward trend in house price growth to continue as the fiveinterest rate rises since last summer have an increasing impact on householdspending and housing demand. Sound economic fundamentals, high levels ofemployment and a shortage in the number of properties available for sale,particularly in London and the South East, will, however, continue to supporthouse prices." House price growth is slowing..... House prices increased by 1.3% between April and July. This was the smallestthree monthly rise - a good indicator of the underlying trend - since August2006. The three monthly growth rate has fallen sharply in recent months,dropping from a high of 4.5% in March. .....and housing market activity also continues to ease Mortgage approvals to fund house purchase in the three months to June (Q2) were4% lower than in the preceding quarter. This continues the downward trend sincelast autumn with approvals in 2007 Q2 being 8% lower than in 2006 Q4. (Source:Bank of England) The level of new buyer interest in purchasing a house fell for the seventhsuccessive month in June, indicating that potential buyers have become morecautious. Completed property sales also fell in 2007 Q2 and were 6% lower than ayear ago. (Source: RICS) Modest pick-up in annual house price inflation is likely to be short-lived... The annual rate of house price inflation has edged up in the past two monthsfrom 10.6% in May to 11.2% in July despite smaller monthly rises. This increasein the annual rate is due to the weakness in house prices in mid 2006 whenprices fell by 0.3% between April and July. The modest recent pick-up in theannual rate is likely to be short-lived. We expect house price inflation to easeover the remainder of the year as the impact of higher interest rates isincreasingly felt. Greater take-up of fixed rate mortgages is delaying the full impact of higherinterest rates... The increase in the proportion of borrowers taking out a fixed rate mortgage inrecent years appears to have affected the timing of the housing market'sresponse to interest rate changes. As a result, house price inflation andactivity are likely to take longer to slow as interest rates rise because manyborrowers are only affected when their fixed rate deal matures. Over the past 18months, nearly 70% of new mortgages have been taken out on fixed rate terms;substantially above the average of around 40% since 1993. ...homeowners who took out a fixed rate deal two years ago face higher paymentswhen they remortgage... The CML estimates that around 1.3 million borrowers took out fixed-ratemortgages in 2005, and a further 1.5 million in 2006. The majority of thesemortgages would have been fixed for two years. A borrower with a £114,000mortgage - the average in 2005 - taken out at the average two year fixed rate in2005 of 5.08%, would be making monthly repayments of £669.02. When the dealexpires this year, the new monthly repayments would be £733.72 - an increase of10% or £65 - assuming that the borrower moves onto the current average two yearfixed rate of 6.04%. ...but most borrowers will be able to absorb the rise in payments The estimated 2.8 million borrowers who took out a fixed rate mortgage in 2005and 2006 account for around 25% of all mortgage borrowers. The overwhelmingmajority of these borrowers are expected to be able to absorb the increase inpayments. Most people's earnings will have risen since they took out themortgage - average earnings have risen by 7% over the past two years in monetaryterms - providing more income to finance the higher interest payments. Inaddition, most borrowers facing higher payments will have accumulated asignificant cushion of housing equity as a result of house price inflation sincethey took out their mortgage. Economic fundamentals are sound...... A healthy economy and strong labour market continue to underpin housing demand.The UK economy recorded an unprecedented 60th consecutive quarter of risingactivity in 2007 Q2. Gross domestic product (GDP) increased by 0.8% between Q1and Q2, above its long-term average pace (0.7%). Over the 15 years from 1992 Q3to 2007 Q2, the level of GDP in the UK increased by 53% after adjustment forinflation. This is significantly faster than in the previous 15 years when thelevel of GDP increased by an inflation-adjusted 32%. The number of people in employment has risen strongly in the past few yearsagainst the background of healthy economic growth. Employment continued to risein the three months to May with the total number 180,000 higher than a year ago.(Source: ONS) ...and supply shortages to support house prices A sound economic backcloth, together with an ongoing shortage of both newhousebuilding and secondhand properties for sale, should continue to supporthouse prices. House price forecast growth in 2007 revised from 4% to 6% We have recently revised our house price growth forecast for 2007 from 4% to 6%.This upward revision largely reflects the greater upward movement in prices thanexpected during the first four months of the year. Pressure on householders'finances is likely to increasingly curb housing demand over the remainder of2007. The increase in mortgage rates since last summer is having an effect onhousing affordability and will bite further during the coming months. Negativereal earnings growth so far this year and rising food prices will also reducethe income households have available for housing. NOTE: The 11.2% number is the quarterly year-on-year figure. This figureprovides a much better picture of underlying trends compared to a monthlyyear-on-year number as it smoothes out any short-term fluctuations. The Halifax House Price Index is prepared from information that we believe iscollated with care, but we do not make any statement as to its accuracy orcompleteness. We reserve the right to vary our methodology and to edit ordiscontinue the indices at any time for regulatory or other reasons. Personsseeking to place reliance on the indices for their own or third party commercialpurposes do so at their own risk. This information is provided by RNS The company news service from the London Stock Exchange