House price growth slowing in UK

House prices in the UK edged up 0.2% last month as the average cost of a home remained close to levels seen at the start of the year, the Halifax said today.

The bank’s monthly update showed the annual rate of growth in prices continued to slow, falling to 2.3% in July and the lowest increase since April 1996.

The average price is now £162,994 (€234,000), compared with £163,682 (€235,000) at the start of the year, although the bank said the fundamentals of the market appeared sound.

It pointed to recent figures showing a steady improvement in housing market activity, while affordability is now in line with long-term averages following the cut in interest rates to 4.5% yesterday.

Chief economist Martin Ellis said it was unlikely the move by the Bank of England would cause the market to overheat in the way it did a year ago.

He added: “The rate cut will support the market, but it won’t give it a boost. Overall, the market is stable, which is encouraging.”

Despite yesterday’s rate cut, the Halifax said it continued to expect average house prices to show an overall fall of 2% in 2005.

With borrowing costs now lower, the bank said mortgage payments as a proportion of income for the average new borrower was down from 20% to 19% – the average for the past 20 years and below the peak of 34% in 1990.

That should help prop up activity levels, which have shown signs of “steady improvement”, the bank added.

Mr Ellis said: “The number of loans approved for house purchase in the second quarter was 10% higher than in the first quarter, and estate agents have reported recent modest upturns in both completed sales and enquiries by potential homebuyers.”