House prices dip for the first time in two years

29 October 2007
House prices have dropped for the first time in two years after it was reported that they had fallen by 0.1 per cent in the month of October alone. This follows two months of zero growth as investors’ lose confidence in a struggling property investment market and higher interest rates finally hit home.

According to Assetz House Price Watch, which monitors the five major UK house price indices, the market witnessed an average of 9.9% annualised growth for the twelve months prior to September – a 1% decrease on the rate of growth from August (10.9%) and a 1.6% increase since September 2006.

The average house price recorded in September was £212,751, down from £213,954 in August – which means a fall of £1,203 in the value of the average property in the last month alone.

Stuart Law, Chief Executive of Assetz comments: "While the annual rate of growth has slowed this month, and monthly house price growth has fallen for the first time since our index began, this fall was marginal, suggesting no immediate cause for alarm and I would anticipate a return to monthly house price growth to be reported in next month's index.”

This is an opinion shared by The Council of Mortgage Lenders (CML), who have reported that house price inflation is likely to remain positive, property transactions are set to remain above one million, interest rates are set to fall by three-quarters of one per cent, and while gross lending will decline thanks to the credit crunch, it is still set to exceed 2005 levels.

CML Director General Michael Coogan explains: "The housing and mortgage markets are facing their most challenging period since Labour came to power a decade ago. Luckily, the credit crunch occurred at a time when the UK economy was robust, but even so the effects on the financial sector are significant, and the mortgage market is not immune from them.

"We now expect a slower mortgage market next year, although by no means a stagnant one. Most borrowers will cope, but not everyone will escape unharmed from the effects of a slower market, so the government should make it a policy priority to overhaul the system of state support for home-owners, which has lagged pitifully behind the times."

Meanwhile, research from the Centre for Economics and Business Research support has backed up the findings from CML after it predicted that the credit crunch, combined with five interest rate rises in just over a year, would inevitably cause prices to fall for the rest of this year and into early 2008.

However, reports remain positive, with the indication that the housing market will be able to “shrug off” the difficulties within the next twelve months and that, due to an imbalance of supply and demand, annual growth would be back at up to 7 per cent a year by 2010.

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