Halifax predicts strong housing market growth

02 June 2003
The latest figures on the UK's housing market show that in May prices rose by 1.5 per cent, largely due to the return of consumer confidence after the war in Iraq.

The figures from the UK's largest mortgage lender, the Halifax, show that house prices in the UK increased by 1.5 per cent this month compared to 0.3 per cent in April.

The annual house price inflation now stands at 22.7 per cent in May, compared to 23.6 per cent in April. According to the Halifax the average house in the UK now costs £129,568 compared to £127,698 in the previous month.

Martin Ellis, Chief Economist at the Halifax argued that the outlook for the housing market remains positive. He claimed that the fundamentals underpinning the market remained in place. High employment, low interest rates and a return of consumer confidence meant that there was 'little prospect of a sharp reversal'.

Mr Ellis highlighted that whilst the rate of house price inflation has been strong in the first five months of this year (6.5 per cent), it is only half of that recorded in the last five months of 2002, which was one of the periods of highest house price inflation ever recorded.

Mr Ellis stated, 'The fundamentals underpinning the housing market remain in place. Good labour market conditions and low interest rates remain supportive of housing demand.

'The number of people in employment - a key factor driving the housing demand according to our research - increased by 47,000 between the final quarter of 2002 and the first three months of 2003.

'There appears to be little prospect of a sharp reversal in either employment levels or interest rates in the foreseeable future.'

The Halifax believes that the prospects for the housing market will continue to be positive for the rest of the year. However, the bank also believes that the annual house price inflation will slow from 23 per cent to 9 per cent by the end of the year.

Mr Ellis stated that the Halifax had found a significant reduction in the number of first-time buyers entering the market. He argued that the strong rise in prices compared to rises in average earnings has led to a 25 per cent fall in the number of first-time buyers entering the market in the first quarter of 2003 compared to the same period a year ago.

The Halifax's survey echoes that of the Nationwide's last week which found that house prices increased by 1.3 per cent in May. However, recent surveys by Hometrack and the Royal Institution of Chartered Surveyors (RICS) indicated that house prices were stagnating nationally and falling in London and the South East.