Evidence pointing to a UK housing market slowdown gathers further pace

6th November 2014

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The UK housing market continues to cool down as new numbers from Halifax show that property prices dropped 0.4% month-on-month in October.

The easing across the sector has caused the year-on-year increase to fall back, albeit to a still strong 8.8%.

The lender’s latest numbers follow a downwardly revised increase of 0.4% month-on-month in September and flat prices in August.

The Halifax data follows on from Nationwide reporting that house prices rose 0.5% month-on-month in October after a dip of 0.1% in September. The year-on-year increase in house prices on the Nationwide’s measure moderated to a 9-month low of 9% in October from 9.4% in September, 11.0% in August and a peak of 11.8% in June – the highest since January 2005.

Martin Ellis, housing economist at Halifax said: “Activity continues to decline with mortgage approvals in September falling for the third successive month to a 14 month low, whilst home sales are at their lowest level since October 2013. The associated weakening in demand has brought supply and demand into better balance.”

Commenting on the latest numbers, Howard Archer, chief UK and European economist at IHS Insight said: “The contrasting month-on-month increase in house prices reported by the Halifax and Nationwide in October highlights the volatility of house prices that can be seen from month to month and from survey to survey, so it is best to take an overview of the various surveys. Significantly though both the Halifax and the Nationwide data are showing an underlying slowdown in house price increases. This is also true of most other housing market surveys and reports.”

It appears however that prices are being reined in by an appreciable moderation in housing market activity from the peak levels seen at the start of 2014.

The Bank of England has reported that mortgage approvals for house purchases fell appreciably to a 14-month low in September while latest survey evidence from both Hometrack and the RICS pointed to a fall in buyer enquiries.

Archer added: “With housing market activity clearly off its early-2014 highs, we suspect house prices will generally rise at a more sedate rate over the coming months. Specifically, we expect house prices to rise by around 0.5% over the final two months of 2014. We see house prices rising by around 5% in 2015.”

Looking ahead, however Archer expects significant restraint on house buyer interest  to come from more stretched house prices to earnings ratios, the prospect that interest rates will eventually start to rise in 2015 and tighter checking of prospective mortgage borrowers by lenders.

“Even so, buyer interest in houses is unlikely to fall away with appreciable support is likely to come from still elevated consumer confidence, markedly rising employment, and still low mortgage interest rates (especially as they now look unlikely to rise before mid-2015 ). In addition, earnings growth is expected to gradually improve over the coming months despite the current weakness,” added Archer.

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