Increase in house prices indicates stable market

An increase in house prices last month following successive declines over both May and June is typical of a stable market, claims the Halifax.

In its latest House Price Index the building society reveals tihe index has reaached 572.9, while the average house price now stands at £177,020, a monthly increase of 0.2%.

Halifax says weak technical factors over July has contributed to a pick-up in annual house price inflation, while a strengthening economy and improved buyer confidence gave the market more momentum than expected.

As a result the HHPI has slightly increased its forecast for house price growth for the year from 3% to 5%, which is still below the long-term average of 8% but is in line with the reported increase in 2005.

It believes a strengthening economy, along with high levels of employment, up 223,000 from a year ago, and low interest rates will continue to support housing demand over the rest of the year, ensuring the market remains in good health.

However Halifax points out there are increasing signs that both the upward trends in prices and activity levels are easing, as house prices have only increased by 0.9% over the last four months compared with a 3.3% over the previous quarter.

Meanwhile according to the latest Bank of England Figures, Halifax says activity has also stabilised with the number of loans approved for house purchase down 2% in the last four months compared to the first quarter of the year.

And it suggests if these developments continue, it should mean annual house price growth will fall during the second half of the year.

The index also highlights the substantial increases in utility bills and above inflation rises in council tax are putting pressure on householders’ finances, while the upward movement in the pricing of fixed rate mortgages in the past few months is also likely to constrain demand and cause house price inflation to fall.

However Halifax notes there has been a significant strengthening of the mortgage market so far this year, largely driven by improvements in the housing market which has boosted lending to finance house purchases.

It says gross lending is predicted to total a record £338bn this year compared with £288bn in 2005, with remortgage loans falling as a proportion of total mortgage lending to 38%, while net lending is expected to increase from £91bn last year to £109bn in 2006.

Martin Ellis, chief economist at Halifax, says: “House prices increased by 0.2% in July following successive declines in May and June. This mixed pattern of monthly price rises and falls is a typical feature of a more stable housing market.”

He claims sound fundamentals will continue to support a healthy housing market over the remainder of 2006, but he warns it expects the annual rate of house price inflation to ease, partly because the corresponding figures last year were strong.

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