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House prices up 11.8% and surpass 2007 peak

House prices up 11.8% and surpass 2007 peak

Category: Mortgages

Updated: 02/07/2014
First Published: 02/07/2014

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 It is now over 6 months old so the content may be out of date.

Despite measures being introduced to try and curb the housing market, prices of the typical UK home are continuing to edge up. In fact, latest figures from Nationwide show that they've increased by 11.8% year-on-year, reaching £188,903 – surpassing the previous peak recorded in 2007.

It means prices have now increased for the 14th consecutive month, having risen by 1% since May alone, with all regions seeing annual price growth in the second quarter of the year. However, there are still stark regional differences, which would suggest that excessive house price increases aren't a national concern.

The South of England continues to record the strongest pace of growth, particularly in London which, as ever, has outperformed. Prices were up some 26% in the second quarter compared to the same period last year, with the price of a typical property in the capital exceeding £400,000 and being 30% higher than its 2007 peak.

In the UK as a whole, however, prices are less than 1% above their pre-recession peak – and excluding London they've yet to catch up, still being 0.4% below pre-crisis levels. For much of the country, it seems, there's no sign of a housing bubble, and with new measures aimed at cooling the market beginning to take effect there are signs that such strong growth – in the capital and elsewhere – could start to slow in the coming months.

Several other studies have noted that mortgage approvals have dropped since new rules following the Mortgage Market Review (MMR) were brought in, and additional measures announced by the Financial Policy Committee (FPC) last week should help to further constrain excessive price rises.

"Anecdotal evidence from surveyors and estate agents [suggests] that activity may be starting to moderate," said Robert Gardner of Nationwide, adding that "lending activity has slowed markedly in recent months, with mortgage approvals in May around 19% below January's high. The underlying pace of demand remains unclear, and transaction levels remain some way below historic averages."

It's thought that the FPC's decisions to limit loan-to-income ratios to 4.5 (i.e. borrowers won't be able to apply for a mortgage more than 4.5 times their salary) and apply additional stress tests to the application process are unlikely to have a major impact in the near-term, but what they should do is help prevent unsustainable price growth in the long-term.

"These policy measures, along with previous actions, such as the introduction of MMR measures, should help to limit the risk of house prices becoming detached from earnings without de-railing the recovery in the wider housing market," concluded Robert.

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