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UK house prices decline by 0.2% in January

1st February 2012 Print

House prices declined by 0.2% in January, but are 0.6% higher than one year ago, according to the Nationwide House Price Index.

Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said: “Given the challenging conditions prevailing in late 2011, with the UK economy contracting in the final three months of the year, it’s not surprising that house price growth softened at the start of 2012. The price of a typical house fell by 0.2% in January, taking the annual rate of house inflation down to 0.6% from 1% in December.

“The demand/supply balance may move further in favour of buyers in the months ahead. The economy is not expected to gather much momentum until the second half of 2012 at the earliest, which suggests that labour market conditions and buyer sentiment may be slow to improve.

“Nevertheless, with the flow of properties coming onto the market still more of a trickle than a flood, house prices are likely to continue to move sideways or only modestly lower in the months ahead.“

Finding a deposit still a hurdle for many potential buyers

“The weakness in buyer demand is partly a reaction to the uncertain outlook for the economy, especially the labour market. But affordability is also part of the explanation – in particular, finding a sufficient deposit.

“This is partly due to the fact that house prices are still historically high compared to peoples’ incomes, and because credit conditions are less easy than before the financial crisis.

“Over the course of 2008 the median first time buyer deposit rose from 10% to 25% as lenders became more cautious, offering fewer products that required a small deposit. However, since early 2010 there has been a modest reversal, with the median deposit falling back to 20% as conditions in the economy and financial system have stabilised.”

Affordability has improved on some measures

“The decline in long-term interest rates has helped to provide some relief for borrowers. Indeed, interest rates for new lending are currently at a record low, which has helped to improve initial mortgage affordability.

“Since 2007, initial mortgage payments as a percentage of take home pay have fallen from 46% to 31% for a first time buyer borrowing with a 20% deposit. Compared to take home pay, initial mortgage payments are now at their lowest level since 2003, just above the long run average of 29%.