Property values fall as HPI makes slow growth

House prices climbed again in January in comparison to the end of last year, but the average price of a UK property continued to fall a fraction, says Nationwide.

Latest statistics from Nationwide suggest the house prices actually rose 0.4% this month whereas they fell by 0.2% in December 2004.

Despite suggesting the prospects are improving for buyers, Nationwide reveals house price inflation dropped slightly as property values climbed an average 0.25% per month over a six-month period and the average house price value is now £151,757 from £152,623 last month, says Alex Bannister, group economist at Nationwide.

"Since last summer the focus of homeowner and would-be homeowner concern appears to have shifted from ‘how high interest rates will rise’ to the future direction of house prices. Consequently, it is increasingly a buyers’ market with prospective buyers staying on the sideline until the outlook becomes more certain. However, with prices having been broadly stable for six months and the market nearing the end of the usual seasonal lull, there are indications that sentiment may be about to turn more positive,” says Bannister.

According to Nationwide, the lull in house price inflation may have been as a result of earlier Bank of England base rate rises, of which there were four between November 2003 and July 2004, along with the introduction of new mortgage regulation and may have temporarily diverted intermediaries’ attention while they got used to FSA requirements.

Bannister anticipates the seasonally-adjusted number of approved house purchases will increase again from 77,000 in November to around 90-100,000 mortgage each month over the coming period, albeit buyers will be more conscious of price rises.

Concerns about house prices could also mean BoE interest rates could also peak early this spring at 5%, predicts Bannister.

“Our view remains that the MPC is likely to raise the base rate to 5% in the spring or early summer and that this will represent the peak in the interest rate cycle. While a further rise in rates would not help borrowers, a peak of 5% would be low by historical standards. Initial mortgage payments as a percentage of take-home pay would rise to 31%, compared to 39% at their peak in the early nineties,” continues Bannister.