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Halifax House Price Index

Amanda Jarvis

February 9, 2006

Key Points

– House prices fell by 0.4% in January, the first monthly decline since May 2005. Overall, prices have increased by 1.6% over the past three months.

– A mixed pattern of monthly price rises and falls is a typical feature of a slow housing market. Last year, for example, there were three monthly falls.

– On an annual basis, at 5.1% house price inflation is unchanged from last month and is significantly below the 13.7% annual growth rate recorded in January 2005. The market is expected to be flat in 2006 with modest nominal house price growth and no change in real terms. UK house prices are forecast to rise by 3% in 2006, broadly in line with the predicted rise in retail price inflation.

– The continuing high level of house prices in relation to earnings, however, should curb housing demand in 2006. Both council tax and utility bills are expected to rise by well above inflation in 2006, putting pressure on household finances. The recent media reports about significant increases in fuel bills – in the 20-25% – highlight this issue.

– The number of first-time buyers (FTBs) picked up slightly in the second half of 2005. Overall, however, the number of FTBs, at an estimated 320,000 in 2005, was the lowest since 1980. The number of FTBs last year was 10% lower than in 2004 (358,000) and 40% lower than in 2002 (532,000).

– Halifax research shows that property in 85% of towns surveyed (439 out of 514) is unaffordable for the typical FTB. It now takes the typical FTB five years to save a deposit. The average deposit is currently £23,967 (equivalent to 76% of the average earnings of £31,485) compared with five years ago when the typical deposit was £9,894 (equivalent to 42% of average earnings). The average age of a First Time Buyer has risen in recent years and now stands at 33. The proportion of those aged 25 and under buying their first home remains low, at just 15% of FTB home purchases.

– The number of loans approved for house purchase increased again in December, according to the latest Bank of England figures. The number of loans, at 122,000, on a seasonally adjusted basis, was 51% higher than in December 2004 and was at its highest level since May 2004. The number of new buyer enquiries increased for the seventh successive month in December, marking the longest unbroken run since 1999, according to the latest RICS survey.

Commenting, Martin Ellis, Chief Economist, said:
“House prices fell slightly in January for the first time since last May with a 0.4% decline. Despite this fall, prices have increased by 1.6% over the past three months as the market has strengthened. A mixed pattern of monthly price rises and falls is a typical feature of a slow housing market.

The housing market remains well underpinned by a combination of ongoing economic expansion, high employment and historically low interest rates. The continuing high level of house prices in relation to earnings, however, should curb housing demand. Additionally, both council tax and utility bills are expected to rise by well above inflation in 2006.”

Number of first time buyers in UK at twenty-five year low

There were an estimated 320,000 first-time buyers (FTBs) in 2005, the lowest annual total since 1980. The number of FTBs last year was estimated to be 10% lower than in 2004 (358,000) and 40% lower than in 2002 (532,000). However, first time buyer numbers did start to pick-up slightly in the second half of 2005. We expect this trend to continue during 2006 as house prices rise at a slower pace than earnings, therefore making it a little easier for FTBs to enter the market.

Eighty five percent of towns unaffordable for first time buyers

Halifax research found that a typical FTB was unable to afford the average house in 85% of towns in the UK in 2005 (439 out of 514), compared to 78% of towns (402 out of 514) in 2002. 97% of areas were unaffordable in London and also the South West in 2005. The most affordable towns were in Yorkshire and the Humber (24%) and the North of England (23%).

Halifax research also found that the typical FTB was unable to afford a semi-detached property in 87% of the towns surveyed in 2005 (424 out of 486), compared to 41% of towns (199 out of 486) in 2002. Terraced properties were unaffordable for FTBs in 50% of towns in 2005 on this basis compared to 28% of towns in 2002.

The average FTB deposit now stands at £23,967

First Time Buyers take, on average, five years to save enough money to get onto the property ladder. This assumes that FTBs save 15% of average earnings per year. Five years ago, the typical FTB took three years to save enough money to get the then average deposit of £9,894. Ten years ago it took the typical FTB two years to save their £5,479 average deposit.

FTBs put down an average deposit of £23,967 in 2005, equivalent to 17% of the value of the property. FTBs in Greater London put down the largest deposit £43,988 (20% of the value of the property) whilst FTBs in Northern Ireland put down the smallest deposit of £12,946 (13%). The average deposit is proportionately much higher than ten years ago, when the average FTB put down £5,479 or 12% of the purchase price.

The average FTB is 33 years old

The average age of a FTB has risen in recent years and now stands at 33. The proportion of those aged 25 and under buying their first home remains low, at just 15% of FTB home purchases. In 1995, 24% of FTBs were younger than 25.

Housing market activity continues to improve

The number of loans approved for house purchase increased again in December, according to the latest Bank of England figures. The number of loans, at 122,000, on a seasonally adjusted basis, was 51% higher than in December 2004 and was at its highest level since May 2004.

The recovery in completed sales gathered pace in the final quarter of 2005, with activity levels at the highest since September 2004, according to the latest monthly RICS survey. In addition, the number of new buyer enquiries increased for the seventh successive month in December, marking the longest unbroken run since 1999.

Sound fundamentals support housing demand

UK economic growth picked up from a quarterly rate of 0.4% in 2005 Quarter 3 to 0.6% in quarter 4, the highest rate for a year. Nonetheless, GDP increased by only 1.8% during 2005 overall, marking the weakest annual increase since 1992.

Ongoing, albeit relatively slow, economic growth, high employment and low interest rates will all continue to support housing demand over the coming months.

But affordability difficulties and significant council and utility bill increases will constrain demand

The continuing high level of house prices in relation to earnings, however, should curb housing demand and prevent a renewed bout of high house price increases in 2006. In addition, both council tax and utility bills are expected to rise by well above inflation in 2006, putting downward pressure on householders’ finances.


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