ONS 3.3pc house price growth allays bubble fears

Robyn Hall

September 17, 2013

The year-on-year increase reflected growth of 3.7% in England and 1.8% in Northern Ireland offset by falls of 2.0% in Scotland and 0.7% in Wales. London and the South East charged with 9.7% and 2.6% growth respectively.

Nicholas Ayre, managing director of homebuying agency Home Fusion, said: “The ONS July 2013 numbers are not really a surprise with the main driver of growth coming from London and the South while prices in Scotland and Wales have seen a fall.

“We are again seeing demand and supply economics at play with a limited supply of housing, but yet strong demand, both domestically and from international buyers in London who are helping stimulate the economy.”

Regional differences

The UK HPI is still below the peak of January 2008 but the England HPI, at 182.4 in July 2013, is now 0.9% higher than at the previous peak in January 2008.

Annual house price increases in the East Midlands grew by 2.4% while prices fell by 1.3% in the North East and by 0.7% in the North West.

Excluding London and the South East, UK house prices increased by 0.8% in the 12 months to July 2013.

Oliver Atkinson, director of the online estate agents Urban Sales and Lettings, said: “The explosive rates of growth in London – up nearly 10% in a year – more than make up for the modest falls in Scotland and the North East.”

First-time buyers and owner occupiers

In July this year prices paid by first-time buyers were 4% higher on average than in July 2012. During July 2013 the average price paid for a house by a first-time buyer was £183,000.

For existing owners this rise was slightly lower at 3% for the same period bringing the average price paid for a house by a former owner-occupier to £282,000.

The average UK mix-adjusted house price in July 2013 was £245,000 reaching 185 on the index which is slightly below the January 2008 peak when the index reached 185.5.

Average mix-adjusted house prices in July 2013 stood at £255,000 in England, £160,000 in Wales, £132,000 in Northern Ireland and £182,000 in Scotland.

In July 2013 London continued to be the English region with the highest average house price at £438,000 while the North East had the lowest average house price at £144,000.

London, the South East and the East of England all had prices higher than the UK average price of £245,000.

Excluding London and the South East, the average UK mix-adjusted house price was £192,000.

Brian Murphy, head of lending at Mortgage Advice Bureau, said: “With such price variation between different parts of the country the regional know-how of brokers, estate agents and surveyors holds the key for many people to securing a sensible mortgage deal on an appropriately valued home.

“However the fact that prices paid by first-time buyers have seen the biggest growth shows that we need to proceed with a degree of caution. Although the wider choice of products and competitive rates mean that obtaining a mortgage is less of a barrier to buying a house all players in the market need to work hard to accommodate buyers with limited funds at their disposal.”

New and pre-owned dwellings

During the year to July 2013 prices paid for new dwellings did not change on average compared with an increase of 3.4% in the year to June 2013.

The average UK house price for new dwellings in July 2013 was £221,000.

During the year to July 2013 prices paid for pre-owned dwellings increased by 3.5% on average, compared with an increase of 3.1% in the year to June 2013.

The average UK house price for pre-owned dwellings in July 2013 was £247,000.

Atkinson added: “Buyer sentiment is improving steadily and there is a growing sense that, despite the Bank of England’s forward guidance, the current cheap mortgages won’t be around forever.

“The result is the release of a lot of pent-up demand from first-time buyers as those who have saved hard for a deposit decide that now is the time to take the plunge.

“But a stubborn shortage of supply is driving up prices as many of those who had been waiting for the right moment are striking now for fear of being priced out of the market later on.”

Housing bubble?

Ayre questioned the now widespread belief that the UK is about to see a house price bubble.

He said: “This really isn’t about the panic buying witnessed in 2007 it is about growing, steady demand. First-time buyers are now increasingly active with some now finding they can access the finance needed to get onto the property ladder and at more reasonable rates.

“The government schemes are starting to trickle through to the housing market with Help to Buy and Funding for Lending. On a seasonally adjusted basis house price growth of 0.3% in July versus June 2013 compared with no change for the same period in 2012 indicates steady price growth rather than a house price bubble.”

Murphy agreed that the ONS figures showed a controlled growth rather than a “dangerous” growth rate caused by government initiatives.

He said: “The ONS figures should go some way to ease concerns that Help to Buy is already driving property inflation at a dangerous rate. Although house prices in London are increasing significantly faster than the UK average, overall house prices have risen at a stable rate, suggesting a recovery that is sustainable rather than combustible.”

Andy Knee, chief executive of LMS, said: “The Bank of England is set to discuss the possible formation of a bubble in the housing market at its Financial Policy Committee meeting tomorrow exploring what action should be taken to prevent fall-out from a burst.

“However such vast regional discrepancies reaffirm the fact that the existence of the bubble is still in question. Due to the nature of the housing market you will always be taking a risk to a degree so if you are able to source that all important deposit and have found the perfect property then make the purchase.

“No one can predict if, or when, this bubble will burst and you don’t want to wait around only to find you have missed your chance.”

Aldermore’s Residential Mortgages managing director Charles Haresnape added: “The ONS house price data for July confirms that recent fretting about an imminent house price bubble is over the top.

“While overall UK house price averages are now higher than the pre-crash peak having risen by 3.3% in the past 12 months, house price rises in England are being massively skewed by London. Many regions either fell or grew very slightly. Reports of a house price bubble have been greatly exaggerated.”

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