House Price Inflation Hits 10.5%

House price inflation hits 10.5%, says the Nationwide. The annual rate of UK house price inflation has hit double figures for the first time since June 2007, according to the Nationwide.

The building society said that house prices in the UK had risen by 10.5% in the year to the end of April.

Prices rose by 1% in April to push the cost of the average home to £167,802.

However, the Nationwide predicted that the past year's surge in prices would tail off later this year, with sellers starting to outnumber buyers. 

"There has recently been evidence of a slight shift in the supply-demand balance," said Martin Gahbauer, the Nationwide's chief economist.

"While the recovery in new buyer enquiries at estate agent offices appears to have petered out, the last few months have seen an increase in the level of new instructions from sellers.

"All else equal, this should lead to a gradual flattening out of the recent upward price momentum," he said.

'Subdued mortgage market'

The building society's figures show that prices in the past three months were just 1.1% higher than in the preceding three months.

That was the slowest three-month on three-month rate since June last year and reflects the fact that much of the annual increase in prices has been due to the rebound in prices that took place last summer.

Despite the revival in prices, which has taken many commentators by surprise, activity in the property market is still relatively subdued.

This has been due to the enforced rationing of mortgage funds provoked by the credit crunch and the banking crisis that started in 2007.

This means the average first-time buyer still has to put down a 25% deposit to secure a mortage.

The most recent figures from HM Revenue & Customs (HMRC) showed that completed sales in the UK jumped by 22% in March from the month before to 72,000.

However, apart from last year, that was the lowest March figure since the HMRC's current records started in 1978.

"The strong rebound in house prices over the last year has taken place within the context of a subdued mortgage market, with the number of mortgage advances across the industry still well down on pre-crisis 'norms'," Mr Gahbauer said.

The average price of a home in June 2007 was £184,070, compared with £167,802 now, the Nationwide figures show.

'Normality'

Recent figures on mortgage approvals by the major banks - an indicator of future sales activity - showed a slight rise in March.

But the figures from the British Bankers' Association showed that the number of approvals was relatively low compared with the end of 2009.

"At the moment we are seeing a lot of sealed bids from buyers on the few highly desirably properties on the market," said Tim Hammond, chief executive, of property search group The Buying Agents.

"Hopefully, once the General Election is behind us, a semblance of certainty and normality will return to the market, and we may start to see a market that is operating not on fear, but on the true value of a property and what a buyer is prepared to pay.

"This is likely to result in prices dropping in the short term, but in the longer term we should see steady growth and a sustained market recovery, built around firm foundations."

Rod's View

Most investors will be surprised by the strength of the property market over the last year. We've been tracking prices every month and have had numerous discussions with investors who are still thinking that prices are falling!

Our view is that the uncertainty in the market will continue for a considerable time. Price rises of 10% pa are unsustainable and reflect a quick 'bounce' from unusually low prices caused by the property crash.

What we would like to see is a more steady 3-4% increase a year that is sustainable long term.

From an investment perspective this 10% price increase clearly signals we are past the low point in buying.  However Axis is still negotiating hard and managing to find extremely good discount on low market values. How long this remains the case we aren't sure, our best guess is 6-12 months.

For investors wanting to get the absolute best deals, don't delay. Buy what you can, whilst the pricing is low and discounts good.

Where do you think prices are headed? Let us know by filling in a comment below.

Live with Abundance

Rod Thomas FCA

Posted in Property Prices

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