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House prices still rising – but at a slower pace

House prices still rising – but at a slower pace

Category: Mortgages

Updated: 03/04/2014
First Published: 03/04/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

There's been concern for some time that house prices are rising too rapidly, with the industry and consumers alike fearing that a fresh property bubble could be forming. However, the latest House Price Index from Nationwide should hopefully allay some of those fears – house prices are still rising, but at a slower pace than before.

Average prices posted a 0.4% increase in March, but this is well below the month-on-month rise of 0.7% recorded in February. On a quarterly basis it seems that things are slowing down too, with them rising by 2.6% in the three months to March – compared to a rise of 3% in the three months to February.

However, despite this moderation, prices are still 9.5% higher that they were in March 2013, putting the average property price at £180,264. But, happily, this is still some 3% lower than the peak levels seen in 2007 prior to the crash of the UK property market.

The figures would indicate that house price inflation is starting to slow, despite an overall annual rise. Robert Gardner, Nationwide's chief economist, said that there had been some "tentative signs of moderation" but that "price growth is continuing to run at a robust pace," and the level of demand for housing isn't likely to subside any time soon.

"There is little doubt that the recovery in the housing market is now firmly established, with activity levels picking up and house prices recording their fifteenth successive monthly increase in March. Record low mortgage rates, improved availability of credit and the brighter economic outlook are all leading to increased demand for housing," he added.

On a regional basis, meanwhile, it seems that prices in London are accelerating quickest, something that's perhaps unsurprising given the strength of the London market. The rate of price growth in the capital is almost double that of the UK average, increasing by 18% in the last year, with the typical London property now standing at £362,699 – meaning the gap between London prices and the rest of the UK has now reached a record high.

There are signs of a broadening recovery though as, for the third consecutive quarter, all UK regions posted price rises in the first three months of 2014. These are at significantly lower levels to London however with the capital's prices arguably skewing overall averages, meaning there may not be too much cause for concern among the rest of the UK.

The implementation of new rules following the Mortgage Market Review (MMR) should act as a further constraint on house prices, as under these rules borrowers will be subject to increasingly strict criteria that could see their maximum loan size reduced and potentially their application refused altogether. If borrowers aren't able to get larger mortgages then, ideally, house prices will stay realistic too.

There are still concerns regarding the supply of housing, however, with Nationwide's report stating that the number of new homes being built is currently some 40% below pre-crisis levels – and that was already insufficient to accommodate the increasing demand. It's hoped that the level of house building will start to pick up, particularly in the wake of the equity loan phase of Help to Buy being extended to 2020, because it's arguably this that will have the biggest impact on correcting the supply/demand imbalance to help get house prices on an even keel.

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