Average house prices rise by £2,000 but experts warn 'significant headwinds' will keep prices down

Published 06th Jul 2011

House prices took an unexpected upward turn in June, adding 1.2 per cent to values in the month as record low interest rates ease the burden on borrowers, according to Halifax.

The bank said that the average house price is now £163,049 - up £2,010 on the May price.

The rise in prices confounded the expectations of economists who had predicted no significant change in prices over the month.

It improves, but does not reverse, a slight downward trend in prices seen this year. The more stable three-month-on-three-month measure showed that prices are still 0.5 per cent lower after the second quarter of 2011 than they were after the first quarter.

And the average price for the three months to June is 3.5 per cent lower on the corresponding figure from a year ago.

Halifax housing economist Martin Ellis said: 'Low interest rates, an increase in the number of people in employment and some tightening in market conditions earlier in the year are likely to have been the main factors behind the recent improvement in price trends.

'A slowly-improving economy and sustained low interest rates should help to support broad stability in the market over the coming months.

Those low interest rates - the Bank of England base rate is currently 0.5 per cent - have lightened the load for borrowers significantly, Halifax said.

Typical mortgage payments for a new borrower have fallen from a peak of 48 per cent of average disposable earnings in mid-2007 to 28 per cent in the second quarter of 2011.

The Bank of England is widely expected to keep rates on hold when it announces it's July rates decision tomorrow.

Better-than-expected employment has also helped support prices. The number of people in employment increased by 80,000 in the three months to April compared to the previous three months, according to the Office for National Statistics.

However, Halifax stressed that the improvement in prices in June was unlikely to signal an ongoing trend of rising prices.

Mr Ellis said: 'The market is, however, likely to continue to face significant headwinds, which are expected to constrain housing demand. Low earnings growth, higher taxes and relatively high inflation are all continuing to put pressure on household finances.'

Howard Archer, chief UK and European economist at IHS Global Insight, reduced his forecast for house price falls but said he still expected prices to fall by 5 per cent from current levels by mid-2012.

'We anticipate that house prices will retreat modestly as squeezed purchasing power, tightening fiscal policy, a soft labour market and worries over the economic outlook weigh down on potential buyers,' he said.

'These headwinds are seen modestly outweighing the support to the housing market coming from likely persistent low interest rates.'

'However, we have reduced our projected drop in house prices by mid-2012 to 5 per cent from 8 per cent, primarily due to the fact that we now expect interest rates to start rising later and more slowly than we previously projected.'

Source: ' ThisIsMoney '

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