July Sees House Prices Fall as Activity in the Housing Market Declines

Whilst house prices remain unaffordable for many, recent figures from the Halifax show house prices fell by 0.6% last month. However, before potential first time buyers get too excited, prices still remain 0.8% higher than in December 2011 and similar to this time 3 years ago. In the last year, some months have seen rises in house prices, while in others they have fallen, so overall house prices have remained fairly steady. It is predicted that there will be little variation in house prices in the coming year, unless there is a significant change in the economy, which at this time looks unlikely. That said, the change in house prices in the last month is of interest and no doubt something that people will be keeping a close eye on.

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National trends

The average home in July cost £161,094. While the rise in house prices in London and the South East have been keeping average house prices artificially high, it looks like this trend could be slowing down. London as a whole still saw an increase in house prices in July, but it slowed to 0.1% and there are now more areas in London where house prices are starting to fall than where they are continuing to rise. Overseas investment in London is thought to be the main reason for London bucking the trend for recent falling house prices. Northern regions of England have been hardest hit with previous falls in house prices and although the North East still saw a 0.5% reduction in prices in July, the rate is starting to slow. Comparing other areas of the country, the North West experienced 0.3% decrease in house prices; the South West, West Midlands, Wales, Yorkshire and Humberside saw a 0.2% decrease, while the South East and East Midlands saw the smallest decrease of 0.1%; East Anglia meanwhile saw no change to house prices.

Probable causes for the fall in house prices

The recent blip in house prices could at least in part be explained by the Government’s change of policy on stamp duty for first time buyers, with more rushing to buy a property before the end of the holiday on stamp duty after March of this year. This is supported by a drop in house sales from the first to the second quarter of 2012 of 11%. Certainly a change in supply and demand seems to have been a factor. Although there always tends to be a reduction in sales during the summer and fewer new buyers, it has been more pronounced this year and seems to have happened more quickly than usual. There has currently been a 1.4% increase in properties going up for sale compared to a fall of 2.1% in those seeking to buy, which is likely to have driven prices down somewhat without the competition between prospective buyers.

Fall in activity in the housing market

The reduction in new buyers can be blamed on the continuing difficulty to obtain a mortgage, with mortgage rates remaining high for those who only have a small deposit. The number of mortgage approvals was at its lowest for 15 years in June and while lenders may have made some attractive offers to those buyers with a bigger deposit, more needs to be done for those people not in this position. The Government’s New Buy scheme, which sees the return of the 95% mortgage – financed by the end to the stamp duty holiday for first time buyers –, will hopefully help make owning a home a reality for more people, but more co-operation from lenders will be crucial. However, another barrier to the sale of properties is the perception of house prices by buyers and vendors. A recent survey by Right Move showed that nearly half of those planning to buy a house in the coming year felt that the price of houses locally was not reasonable, which compared to only a third of those wanting to sell their property – the likely outcome being that vendors are less likely to drop the price they are willing to accept to ensure a sale.

By

Amy Millband

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