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UK property prices on the wane despite second-place status in eurozone

31 August 2007
Despite the recent Inflation Report from the Bank of England indicating a highly probably rate increase to 6 per cent, Nationwide has warned customers that homeowners may not have to bear another interest rate increase as there are now “clearer signs” of a decline as annual price inflation drops.

During a period of troubled financial markets and a decrease in new buyer inquiries, the building society is not anticipating further rises.

Group economist Fionnaula Earley said: “The expected slowing results from three factors: weaker affordability, the effect of higher interest rates, and lower house price expectations.”

August house prices grew 0.6 per cent in August to an average of £183,898; however, annual inflation has dropped to 9.6 per cent, the lowest level seen since March.

The company predicts that house price inflation for the full year will slow to between 5 and 8 per cent.

“While it has taken some time for these factors to bite, there are now clearer signs of slower demand in the market, reflected in the collapse in new buyer inquiries,” said Ms Earley.

Despite this, Halifax has revealed that house prices have beaten every other country in the 12-member eurozone barring Spain since 2001.

House prices have risen by 90 per cent in the last five years, far higher than the average of 40 per cent for the eurozone as a whole.

Germany is the only one of the 12 members to have seen a decrease, with house prices falling five per cent compared with prices in 2001.

Group economist, Tim Crawford, said: "UK house prices have risen more rapidly than in its eurozone neighbours over the past five years. House price growth, however, has slowed in the past couple of years compared with the likes of Belgium and France recording bigger increases. Two of the largest economies surveyed – the US and Germany – are the only ones to have seen a fall in house prices."

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