House prices have risen above their pre-financial crisis peak

The Momentum UK Team 02 July 2014

UK house prices have risen above their 2007 peak, with prices having climbed 1% in June and 11.8% from this time last year, according to an ongoing report.

The average house price is now £188,903 according to the study by building society Nationwide, and London average house prices have surpassed £400,000 for the first time. However, despite the increase in house prices generally, the report also identified huge variation across the country. It also expects house prices to slow down in July for London buyers, based on anecdotal evidence from estate agents and surveyors.

The annual house price rose from 11.1% in May to 11.8% in June, with every region in the UK witnessing an increase. June’s rise was the 14th successive monthly increase in house prices. Other surveys over the past few months have echoed the Nationwide’s findings, but have also suggested that local markets are moving at different paces. Last week the Land Registry said that house prices were still falling in some areas of Wales and the North West of England. Most of the surveys agree that the South of England is seeing the strongest growth in house prices.

According to the Nationwide, London saw the greatest rise - prices rose 26% in the last three months compared to the same period last year, 30% above their 2007 peak. However, the report also suggested that house prices in the capital will begin to slow soon - a view shared by local estate agents.

James Hall, Director of London estate agents Fishneedwater commented:

"There are already signs that buyers are starting to say enough is enough. Whereas a few months ago, buyers were offering silly prices on some very average properties, the silly season in the capital seems to have passed. Buyers are now taking their time, and making fair offers. We are definitely seeing fewer properties going for or over asking price."

Bank of England data also shows that mortgage approvals – which signal future house purchases – have slowed in recent months. The moves by the Bank of England’s Financial Policy Committee (FPC) to take the housing market off the heat were met with scepticism from some. The FPC’s insurance against a volatile market included insisting mortgage lenders check that mortgage borrowers would be able to cope with a 3% rise in interest rates, toughening up existing mortgage checks, and putting a 15% cap on mortgage lending to people who want to borrow more than 4.5 times their income from October. They hoped that these measures would discourage risky lending, but Nationwide’s Chief Economist Robert Gardner suggests that the FPC’s changes will have little effect:

"Most major lenders are already using a stress rate in their affordability calculation... similarly, the proportion of house purchase loans at or above 4.5 times borrowers' income is currently some way below the 15% cap."

The expectation of a Bank of England base rate increase could also dampen house price activity, although demand for housing still strips supply due to the increasing population and lack of new housing being built.

"It is important to note that the Financial Policy Committee does not have the tools to address the fundamental problem with the housing market - the lack of supply," Gardner argues.

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