Asking prices slow as rate rises bite!

Average national asking prices for homes in England and Wales rose by just 0.3% in July, the lowest monthly rise this year, according to rightmove.co.uk.

This year’s third interest rate rise has coincided with the lowest monthly asking price increase recorded so far in 2007. The last time growth was this low was December 2006 with -0.3% and September 2006 with a 0.2% increase. Average national asking prices rose by just 0.3% (£684) as sellers flattened their price expectations. Indeed, the cumulative effect of the rising interest rate environment has seen prices over the last three months rise at a quarter of the pace set in the preceding three months. Between January and April asking prices rose by 6.1%, from £222,859 to £236,490. Between April and July they rose by only a further 1.5%, to £240.001.

As a consequence, the annual rate of house price inflation has dropped sharply from 13.2% to 10.3%, the lowest yearly rate since it stood at 9.8% in September 2006.

Miles Shipside, Commercial Director of Rightmove comments: “This is further evidence that the ‘mini boom’ is coming to an end. As long as employment remains buoyant, prices are likely to remain broadly at these levels. However, depending on local supply and demand, sellers are going to have to duck and weave with their asking prices, especially if there is another rise in interest rates. This may be less likely now as there do seem to be further ‘indicators suggesting a softening in the housing market’ as referred to in the MPC’s latest minutes”.

Instead of the traditional North-South divide, we now have a divide between London and the rest of the country. While the London market continues to show signs of cooling, the annual rate of increase is virtually double all other regions of the country. The closest contender to London’s 21.7% annual increase is the Yorkshire and Humberside region where prices have risen by 11.4%. Even the capital’s neighbours in the South East and East Anglia have a rate less than half that of London, at 10% and 10.4% respectively.

Miles Shipside comments: “Shortages of supply will remain more acute in the capital, as suitable building land is harder to come by and demand will continue to grow as the City strives to become the financial capital of the world. The consequent upwards pressure on prices can be absorbed by highly paid City workers, but it exacerbates the existing problems for key workers and first time buyers in London”.

The challenge of Gordon Brown’s pledge to provide more affordable housing is clearly illustrated by the faster rate of increase in the prices of terraces and flats over the last year due to continuing demand from new households. Affordability has deteriorated much faster in the cheaper property types traditionally purchased by those most in need of affordable housing. Terraces have risen over 30% faster than semi detached and detached property in the last 12 months, with an annual rate of increase of 11.8%. Flats have risen at a staggering double the annual rate of house price inflation for semi-detached and detached properties, with asking prices 16.5% higher than a year ago.

Miles Shipside explains: “The number of households is growing, but new households are faced with limited choice in the ‘affordable’ sector that Gordon Brown has promised to create to help first time buyers get onto the property ladder. The result is increasing price pressure on the cheapest property types of terraces and flats, especially in the London market where more jobs are created to support the capital’s buoyant economy. Building more affordable housing is the right solution, but the Prime minister’s revised target of
40,000 extra homes per year starting in 2016 is too little too late”.

Meanwhile, family movers face the challenge of having to source a HIP if marketing after 1st of August if their property has four bedrooms or more. The timing unfortunately coincides with the highest interest rates for six years, placing an additional potential cost burden on family home movers’ increasingly stretched finances.