UK house prices rise 1.1% in April

House prices rose by 1.1% in April, the smallest monthly rise so far this year and the second lowest since July 2006, according to the latest Halifax House Price Index.

The annual rate of house price growth fell slightly to 10.9% from 11.1% in March.

Signs that housing market activity is easing

The number of mortgage approvals to fund house purchase fell from a seasonally adjusted 118,000 in February to 113,000 in March, the lowest level since April 2006. Overall, approvals in the first three months of 2007 were 5% lower than in the final quarter of 2006 (Source: Bank of England).

Buyer interest in properties declined for the fourth consecutive month, according to the latest RICS monthly survey.

Good economic and employment conditions underpin healthy housing demand

Gross domestic product (GDP) is estimated to have continued to grow at above its long-term average pace in the first quarter of 2007 with a 0.7% increase (Source: ONS). The UK economy has now recorded 59 consecutive quarters of growth, extending the longest unbroken stretch on record, and on track to breach the 60 mark in the current quarter.

The number of people in employment has increased by 147,000 over the past year, although there was a 47,000 decline in the three months to February compared with the previous quarter.

Housing supply is low

The stock of unsold property on estate agents' books fell in March, pushing up the ratio of sales to available property stock to its highest since mid 2004, indicating that market conditions are the tightest for nearly three years (Source: RICS). Healthy, albeit easing, demand together with a shortage of both new and secondhand homes for sale continues to drive house prices up.

But negative real earnings growth and higher interest rates to cause house price inflation to moderate

Annual headline retail price inflation, at 4.8%, is in excess of annual average earnings growth, at 4.6%, according to the latest figures (Source: ONS). This negative real earnings growth, together with the effects of the interest rates rises since last summer, is exerting pressure on householders' finances. In addition to the rise in variable rate mortgages since last August, fixed rate mortgages have also risen, reaching an average rate of 5.56% in March 2007; the highest since August 2001 (Source: Bank of England). These pressures, exacerbated by a probable interest rate rise in the near-term, are expected to further constrain housing demand over the coming months. As a result, house price inflation is likely to ease.

Commenting, Martin Ellis, chief economist, said: “House prices increased by 1.1% in April; the smallest monthly increase so far this year and the second lowest since July 2006. There is accumulating evidence of a slight easing of conditions in the housing market with further signs of moderation in both demand and activity in the past month.

“Demand remains healthy which, together with tight supply, continues to push up prices. Good economic growth and a strong labour market will continue to support healthy housing demand. Negative real earnings growth and the increase in interest rates since last August, however, are expected to exert increasing pressure on householders' finances, resulting in slowdown in house price inflation over the coming months.”