House price boom starting to slow down

29 May 2003
Despite a rebound in house prices during May, the housing market is set to decline over the coming months, according to figures from the Nationwide.

The building society found that property prices rose by an average 1.3 per cent in May, following static prices in April.

However, the latest housing price survey shows that the annual rate of house price inflation fell from 22.2 per cent in April to 21.3 per cent in May and the Nationwide is continuing to predict a 10 per cent growth in house prices for 2003.

According to the Nationwide the average home costs £124,752 and the mortgage provider expects to see smaller monthly rises if between 0.5 and 0.7 per cent over the rest of 2003.

Sales for 2003 are reportedly down seven per cent of the previous year and transactions fell to 114,000 in April, the lowest they have been since January 2001.

First-time buyers are still being priced out of the market, the Nationwide says, with the number of first-time buyers falling by 15 per cent on the same time last year, and by 30 per cent in the south of England.

Alex Bannister, Nationwide group economist said, 'The recent sharp decline in first-time buyer numbers is likely to reduce upward pressure on the more affordable end of the market.

'It is likely that any easing in price growth towards the bottom of the market may ripple upwards and be the mechanism for the more broadly based slowdown we expect this year.'

The Nationwide report suggests that UK house prices are facing a steady decline rather than a crash, however. The house price bubble was expected to burst or gradually slow this year after prices, particularly in the south-east rocketed last year.

A similar report from Hometrack last week claimed that house prices in England and Wales fell for the second month in a row, dropping 0.1 per cent during May.

The Nationwide survey follows a report earlier in the week that suggested rents are also increasing fast and many workers unable to buy are finding it increasingly difficult to find affordable rental properties.

The Bank of England has also predicted that house price rises would come to a halt in a year or possible even sooner.

The house market boom has been driven by low unemployment, rising incomes and low interest rates.

A possible slowdown in the employment market and a decline in salary increases could hit house prices. However, mortgage borrowing remains strong, with many homeowners choosing to remortgage their properties to free up extra cash.