London leads housing slowdown

Property prices in the UK fell during July, according to the latest monthly update from the Nationwide.

The figures suggest that the market has cooled, with prices remaining static over the past three months.

Even in London, where prices are close to their 1989 level in real terms, typical mortgage payments account for just 29% of gross average earnings compared to nearly 60% at the height of the eighties boom.

David Parry

The Nationwide said the price of the average property sold in July fell by a seasonally adjusted 0.2%.

The average property now costs £81,133, which remains 14% up on a year ago. The annual increase a month earlier had been 15%.

Nationwide director David Parry said: "Prices are still 14% higher compared to a year ago, but over the past three months they have remained broadly unchanged."

He also said housing market activity appeared weaker.

First-time strife

He said that on a regional basis it appeared that prices in London had seen the most significant slowdown.

"Part of the explanation for the weakening is that price rises over the last twelve months were simply not sustainable and fewer first time buyers are entering the market," said Mr Parry.

In the second quarter of this year, an average first-time buyer in London would have needed to find a deposit of £12,550 and earn around £32,300, up from just over £12,000 and £31,000 respectively in the first quarter.

"The slowdown in house price growth is a sign that the market has become more mature over the last decade," said Mr Parry.

He said that it was not a repeat of the bust period which followed the 1980s boom.

Lower rates

"With no tax breaks and lower inflation, there is less incentive for buyers to overstretch themselves," said Mr Parry who calculates that current prices, taking into account earnings and inflation, are 15% below their 1980s peak.

"This evidence suggests that the recent slowdown in the market is unlikely to be the start of a sustained fall in house prices.

"The cost of servicing a mortgage is still low because mortgage rates are at about half their eighties level. Even in London, where prices are close to their 1989 level in real terms, typical mortgage payments account for just 29% of gross average earnings compared to nearly 60% at the height of the eighties boom."