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Posted - 07 June 2007 : 09:59:27
Homes rise by just £500 in May
House prices rose by just £500 in May as homebuyers tightened their belts, according to Britain's biggest mortgage lender.
Falling demand for property and the fourth interest rate rise in nine months led to prices increasing last month at the slowest pace this year, Halifax revealed today.
The cost of the average home rose by 0.3% to £196,893 according to the Halifax house price index, which has shown property rising by around £2,000 a month since the start of the year.
But annual house price inflation remained in double digits despite the slowdown, with the average property costing 10.6% more on May than a year ago – a slight fall on April's figure of 10.9%.
Fears that interest rates may rise further and repeated warnings that property prices are over inflated have led to a drop in homebuying confidence over recent months.
Martin Ellis, chief economist at Halifax, said: 'The recent slowing in monthly house price inflation, together with further evidence of moderation in housing market activity, suggests that the interest rate rises since last summer are having an impact on the market.
'Higher interest rates, the negative trend in real earnings growth and rising food prices are likely to bite increasingly on householders' finances over the coming months, curbing housing demand.
'House price inflation is expected to moderate as a result. The market, however, remains supported by solid economic foundations which, together with supply shortages, will continue to support prices.'
Homeowners will be watching closely when the Bank of England reveals its bank rate decision at noon today, after those with variable rate mortgages suffered the fourth interest rate hike since August when it was raised to 5.5% last month.
Evidence of a slowdown in the property market has been highlighted recently, with mortgage approvals for house purchases at their lowest level for a year and surveyors reporting declining buyer interest.
Meanwhile, Britain's property market has become two-tier, with house prices rising rapidly in London and the surrounding area and Northern Ireland, but slowly elsewhere.
Howard Archer, chief UK economist at analysts Global Insight, said: 'Despite slowing demand, house prices seem likely to lose buoyancy only relatively gradually over the coming months as a general shortage of property means that pricing power is currently still in favour of the vendor.
'This is particularly true in London and the South East, where prices are being fuelled by elevated City bonuses and strong foreign demand, as well as an acute shortage of supply.'
Source: thisismoney.co.uk
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