HIPs and interest rate rises stall London housing market growth

The average London house price levelled off in May, only witnessing a very slight rise of 0.1% to £264,801 up from £264,636 in April, reveals the latest data from haart estate agents.

The interest rate rise at the beginning of May coupled with an increase in the number of properties entering the market over the last two months in the lead up to the initial HIPs introduction date has caused property prices in the capital to stabilise. Buyers have capitalising on this shift in the market and achieved an average reduction in asking price of 3% in May.

Supply and demand re-adjust

London’s property price growth slowed in May, with the average price increasing only slightly by 0.1% to £264,801 due to an adjustment in the supply and demand imbalance. However, prices have increased by just under 3% in 2007 so far and are up 6% on May last year.

The supply of housing stock increased in May as sellers continued to rush to put their houses on the market before June 1st to avoid the added cost of a HIP. At the same time, an increase in the interest rate resulted in dampened demand and stabilising prices as price sensitive buyers achieved a discount on the asking price.

Paul Smith, chief executive of haart comments: “Due to a slight change in the balance between supply and demand, as sellers tried to beat the impending HIP deadline, May saw London prices stabilise. In addition, the widely predicted interest rate rise at the beginning of the month has made buyers increasingly price sensitive and only the correctly priced properties are selling. However, location, location, location has played a major part in determining which properties achieve their asking price, with sellers in the most desirable areas benefiting.”

“Going forward, haart predicts that once the dust has settled on the pre-HIPs listings, growth in the London housing market will pick up again and remain steady for the rest of the year.”

First time buyer level not recovering

Market conditions have not improved the plight of first time buyers in May, who made up only 25% of the market share for the third month running.

Paul Smith continues: “The fourth interest rate rise since August was not good news for first time buyers. However, the numbers in this group managed to remain stable as buyers took advantage of the increase in supply and achieved a reduction on the asking price.”

London-wide variations

The South East of London saw the highest increase in average price in May, rising 1.7% to £241,118, and was also the only region to experience a discount on asking price of less than 2% at 1.75%. In contrast, the South West of the capital saw a 0.2% decrease in house prices, accompanied by a 3.3% asking price discount.