London’s turn-of-the-year surge in house prices has stalled, according to the Financial Times house price index, allowing the property market in other regions to catch up with the capital.
The end of the mini-boom in London’s market did not stop the gradual pick-up in prices across England and Wales, however. Property prices continued to rise at about 0.5 per cent a month, pushing up the annual rate of inflation from 3.8 per cent in March to 4.3 per cent in April.
The gradual rise in house prices seen since the autumn led Mervyn King, Bank of England governor, to warn on Wednesday that the “level of house prices still seems remarkably high relative to average earnings or average incomes or anything else you could look at”.
The buoyant housing market, which has been stronger than the Bank predicted, was one of the reasons it gave for forecasting stronger demand and inflation in the economy, with the implication that the next move in interest rates is likely to be up.
The FT house price index encompasses every property transaction in England and Wales, using the most recent information sent to the Land Registry and a statistical model, and attempts to foreshadow the movements in the Land Registry’s index.
It shows that prices stagnated in London in March after leaping by 7 per cent in the previous three months, leaving prices in the capital 6.1 per cent higher than a year earlier.
The other three regions with annual increases above 6 per cent were the North of England, Wales and Yorkshire and Humberside. These markets grew steadily over the past year in contrast with London’s mini booms and busts.
Only property prices in East Anglia, the East Midlands and the South West of England grew by less than 2 per cent over the past year.
Acadametrics, the consultancy that produces the FT house price index, said the slowing of London’s market gave a more stable pattern to house price rises across the country.
Gary Styles, Chief Economist and Chairman of Acadametrics said: “House prices have risen by an average of 0.5 per cent a month since the start of the year and this looks set to continue”.
“We expect a very steady performance from house prices and activity over the remainder of 2006 as the outlook for interest rates and employment begins to restrain market expectations.”
The FT index is now showing a more subdued market than the figures from the lenders, the Halifax and the Nationwide, which reported 8 per cent and 4.8 per cent annual rates of house price inflation respectively in April.
Three reasons explain the differences. First, the much more comprehensive sample of prices used by the FT index irons out most of the volatility in the lenders’ figures, which are based on much smaller samples of mortgage approvals.
Most recently, the Halifax said prices jumped by 2 per cent in April alone, while the Nationwide said they barely budged, rising by only 0.1 per cent.
Second, the various house price measures use different methods to get round the important problem that there is a constantly changing mix of properties sold.
Recently, there has been a greater proportion of high-priced large houses sold in the South of England, which would artificially raise the measured rate of house price inflation if an adjustment was not made. The FT house price inflation rate, for example, is almost 50 per cent higher at 6 per cent without mix adjustment.
Third, the lenders measure house prices at mortgage approval stage of the buying process, while the FT index measures prices paid.
Revisions in to past figures have been small this month. The average price of property in March was estimated to be £200,914, a little lower than the £201,334, estimated a month ago.