Halifax: house-price inflation slowing

Halifax: house-price inflation slowing

Britain's biggest mortgage lender, the Halifax, today predicted a slowdown in house-price inflation in the second half of the year after its monthly snapshot of the property market showed prices rising at 0.4% last month.

With the Bank of England expected by the City to raise interest rates for a fifth time in less than a year tomorrow, the Halifax said there were signs that higher borrowing costs were already slowing the market. It ruled out a property crash, however.

The Halifax said prices had risen by 2% in the second quarter of 2007, down on the 3% increase in the first quarter and the 4.2% rise in the final three months of 2006. A 10.7% increase in the cost of a new home over the past year has taken the average price of property in the UK to more than £197,000.

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Martin Ellis, the Halifax's chief economist, said June was the second successive monthly rise of less than 0.5% and he expects the slowdown to continue.

"The increases in mortgage rates and the persistence of negative real earnings growth in the early months of 2007 are expected to cause annual house price inflation to slow further over the coming months. Solid economic fundamentals and a shortage of housing supply will, nonetheless, continue to support house prices," he said.

Northern Ireland recorded the biggest regional increase in house prices over the past three months, posting an 8.5% rise. London prices were up by 4.9%, but there were small falls in the south-west (-0.4%), the West Midlands (-1.1%) and Wales (-2.8%).

The Halifax said the "modest declines" needed to be seen in the context of the substantial price rises recorded in all three areas over the past five years: the south-west (63%), the West Midlands (81%) and Wales (116%).

Despite evidence in recent months that the property market has started to cool, the Bank of England's monetary policy committee will today start a two-day meeting to decide whether the bank rate should rise for the fifth time in less than a year.

Two-thirds of City analysts believe an increase to 5.75% is imminent, with the prospect of a tightening of monetary policy pushing the pound through the $2.02 level against the dollar on foreign exchanges.

The Halifax figures are in contrast to the Nationwide survey last month, which showed house prices had risen by 1.1% in June.

This was the biggest rise since December and one which lifted the annual increase to 11.1%, the strongest in more than two years.

Other data, such as mortgage approvals, suggest the four rate rises since last August may be taking the steam out of the market.

Commenting on today's Halifax data, Howard Archer, chief UK economist at Global Insight, said: "House prices can be very volatile on a month-to-month basis and conflicting evidence can emerge from survey to survey.

"Consequently, an overview needs to be taken, rather than trying to read too much into one particular survey or piece of data.

"Overall, the evidence suggests to us that the housing market has peaked and is gradually coming off the boil."

In an interview with the Financial Times, chancellor Alistair Darling has admitted that he is worried about the number of people who are currently on fixed-rate mortgages, which were taken out before the recent interest rate rises.

"What is obviously a concern to me is that when people come off a rate that was fixed two years ago, and I suspect there are a lot of people on two-year mortgages, they will then find that the rate has gone up," he said.

Mr Darling added that the planning system must be reformed to help make housing more affordable.

"Housing is actually a huge issue for all of us. In the recent elections I don't think that I met anybody who didn't raise it, either on their own account, or their children's account."

"It's one of the biggest problems that we were facing in this country, and planning is key to it," Mr Darling insisted.

Separately, data from the Bank of England showed that housing equity withdrawal eased to £13.2bn in the first quarter of this year from a downwardly revised £13.3bn in the fourth quarter of 2006.

Withdrawal for the last three months of 2006 was originally estimated at £14.6bn.

Despite falling, the level of equity withdrawal was still high compared with a low of £6.1bn only two years ago.

Buoyant house prices and limited growth in households' real disposable income over the past year have encouraged more Britons to refinance home loans to free up cash for other spending.

Mr Archer said this was reflected by weaker unsecured borrowing recently compared to past norms as consumers find cheaper measures than credit cards to sustain their high level of spending. The money is also often used to top up pensions.

Housing equity withdrawal amounted to 6.1% of post-tax income in the first quarter of 2007, which was unchanged from the fourth quarter of 2006 and up from a low of 3.0% in the first quarter of 2005.

"We expect housing equity withdrawal to moderate over the coming months in reaction to slowing house price inflation and higher interest rates, thereby providing less support for consumer spending," said Mr Archer.

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