Three interest rate rises since last August have cooled the housing market with house price inflation stable and regional disparities beginning to narrow, the latest FT house price index shows.
Annual house price inflation was broadly stable at 6.9 per cent in January with prices rising 0.7 per cent in the month. The rate of inflation was almost unchanged from the 6.8 per cent rate recorded in December.
With the Bank of England deciding to keep interest rates on hold at 5.25 per cent on Thursday, the FT house price index reinforces the view that the housing market has stopped accelerating. In December, Bank of England figures showed a large drop in mortgage approvals for the first time in a year.
London house price rises still lead the rest of England and Wales on both monthly and annual comparisons, but the gap between the capital’s housing market and elsewhere has narrowed.
In December, prices in London were 9.4 per cent higher than a year earlier with the house prices in the East and West Midlands showing the smallest gains of 4.2 per cent. But London’s rate of house price inflation fell sharply in December as the monthly growth of 0.9 per cent could not match the 3 per cent growth recorded in December 2005.
In the three months from September to December, house price rises in the South West and in Wales exceeded those in the Capital.
Peter Williams, chairman of Acadametrics, the consultancy that compiles the FT house price index, said: “There is some evidence that the three rates rises since August 2006 are having an impact and there is an expectation that price rises will moderate during the year”.
The FT house price index is based upon Land Registry data covering every transaction in England and Wales and is much more comprehensive than the surveys by the lenders Halifax and Nationwide, which recorded annual price rises of over 9 per cent in January.
The inflation rate in both lenders’ surveys has also stabilised in the past three months, indicating that while house prices backed by mortgages might be rising more quickly than the rest of the market, house price inflation across the board has stopped its upward march.
The question for 2007 will be whether the inflation rate stabilises at a lower level of increases or if house price inflation begins to fall fast as buyers no longer feel pressure to buy at ever increasing prices.
The regional markets in the North of England, the South West and Wales have been stronger over the past three months than over the year as a whole, while the markets in East Anglia, the Midlands and the North West have been weakening.
