House prices rise 0.7% in July

House prices increased by 0.7% in July, according to the latest Halifax House Price Index. 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.

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 consecutive month that house prices have risen by less than 1.0 per cent, confirming that house price inflation is slowing.

We expect the downward trend in house price growth to continue as the five interest rate rises since last summer have an increasing impact on household spending and housing demand. Sound economic fundamentals, high levels of employment and a shortage in the number of properties available for sale, particularly in London and the South East, will, however, continue to support house prices."