Tuesday, November 30, 2004

Nationwide predicts house price freeze

Sandra Haurant , The Guardian

House prices across the UK will come to a virtual standstill in 2005, the Nationwide Building Society predicted today.

The lender said that property prices in Britain look set to rise by just 2% across the year, compared to a rise of 13% in 2004.

Alex Bannister, Nationwide's group economist, said: "Following the increase of around 13% in house prices during 2004, we expect price growth in the 12 months to December 2005 to be in the range of 0 to 5%.

"However, the likelihood is that annual price inflation will end next year towards the lower end of this range."

According to Nationwide, house prices rose by 1% in November, cancelling out the 1% fall seen the previous month. The price of the average property is now £153,439, just under £900 lower than at the market's peak in July.

Mr Bannister said: "Despite November's 1% increase in property prices, the recent trend in house price growth remains muted. The price of the average house has risen by an average of just 0.3% per month over the last three months compared with an average of 1% per month over the previous three months."

Commenting on today's figures, Howard Archer, chief UK economist at investment company Global Insight, said: "The 1% month on month rise in house prices reported by Nationwide is a surprise, and will raise hopes that the housing market will slow relatively steadily over the coming months rather than slump.

"However, there are always likely to be fluctuations around the slowing trend, while latest survey evidence - showing further weakness in mortgage lending and approvals, waning buyer interest, more houses on the market, more time needed to sell a house, and agreed selling prices continuing to fall as a percentage of asking prices - clearly points to further price weakness ahead."

The Bank of England announced yesterday that the number of people taking out mortgages to buy property has fallen in October to just 83,000, the lowest level since January 2000.

According to the Nationwide, the north-south divide in house price inflation will continue to narrow in 2005. Monthly price growth has already seen a slowdown in most regions, and a more slow growth in 2005 will mean a sharp reduction in annual price inflation, particularly in those regions that saw phenomenal growth in 2004.

The brakes will be slammed on hardest in the north, north-west, Yorkshire and Humberside and Wales, the building society forecasts. These are the areas that experienced soaring prices in 2004, leaving buyers' ability to afford property severely stretched.

Mr Bannister said: "The change in pace of price growth reflects higher interest rates, subdued real take-home pay, ongoing concerns about affordability and buyers; expectation of future price growth becoming more realistic."

He added that today's economic conditions meant that a collapse in the market might be averted.

"The changing economic backdrop is acting as a drag on the housing market. This contrasts with the early nineties, when the severe economic downturn resulted in a sharp correction in the housing market".

Mr Archer said: "We currently share Nationwide's view that the chances are relatively good for achieving a soft landing in the housing market. However, a crash obviously cannot be ruled out."