Page last updated at 11:45 GMT, Friday, 26 February 2010

UK house prices 'lose momentum', says Nationwide

Houses in the snow
Snow affected people's chances to view homes

UK house prices fell for the first time in 10 months in February as icy weather put off house hunters, the Nationwide building society has said.

Average property values dropped by 1% compared with January, with the average home worth £161,320.

But the annual rate of increase accelerated to 9.2% because prices dropped faster a year ago.

Mortgage lending also slowed at the start of the year owing to the hangover from the stamp duty holiday.

A separate Land Registry survey of house prices in England and Wales found that in the previous month, January, prices rose strongly by 2.1%.

That was the eighth monthly rise in a row reported by the Registry and pushed the average house price up to £165,088 - 5.2% higher than in January 2009.

Blip?

A better indication of house price trends is available by looking at the three-month on three-month comparison available from the Nationwide.

House price graph

This showed a 1.6% increase in the three months to February, having slowed from 2% in January and from the peak of 3.7% in September.

Prices surprised many commentators by remaining relatively buoyant throughout the second half of 2009.

The Nationwide said it was difficult to gauge whether February's fall was a "temporary blip" or the start of a new downward trend.

"There is evidence from a range of indicators that the market may have lost momentum in early 2010 as the stamp duty holiday ended and house hunters were obstructed by the icy weather," said Martin Gahbauer, chief economist for the Nationwide.

"Even without the impact of stamp duty changes and the snowy weather, it would have been surprising to see house prices maintain the very strong upward momentum seen for most of 2009."

Little increase in household incomes and relatively high unemployment could also have put the brakes on house prices.

Mr Gahbauer said that it was a "positive development" for house prices not to race away from these economic fundamentals.

Mortgage lending

The number of new buyers making enquiries about homes dropped at the start of the year.

Houses
Properties in sought-after locations are in short supply

Recent figures from the Council of Mortgage Lenders also showed that gross lending for home loans fell by 32% in January compared with December, to a 10-year low of £9.1bn.

This lack of buyer demand fed through to the drop in agreed prices in February, Mr Gahbauer said.

There has been widespread agreement among commentators that the slowdown in mortgage lending at the start of the year was the result of bad weather and the end of stamp duty relief.

The stamp duty threshold dropped back to £125,000 on 1 January, prompting a rush on mortgage approvals and completed home sales in the final months of 2009.

The government concession, which had temporarily pushed the threshold up to £175,000 for just over a year, had been aimed at halting the rapid slump in the property market.

As a result, first-time buyers would welcome any slow down or fall in house prices, as they were among the most likely to suffer when this relief ended.

Mr Gahbauer said that, with the Bank rate at a record low of 0.5%, mortgage borrowers were sticking to variable rate home loans - rather than signing up to fixed-rate deals - as they expected interest rates to stay low.

Regional variations

In January, house prices in England & Wales rose fastest in London, where they went up by 3.9%.

Over the past year prices in London were up by 10.5% and they were also positive in six other regions - Wales, the West and East Midlands, the South East, South West and East Anglia.

However in the North West, Yorkshire and Humber, and the North East prices fell in the twelve months to the end of January.

"The Nationwide Building Society numbers for February, also published this morning, cast some doubt on whether this trend can be sustained," said Simon Rubinsohn of the Royal Institution of Chartered Surveyors (Rics).

"While bad weather may have played a role in knocking both activity and prices this month, Rics believes that there shouldn't be too much emphasis placed on monthly volatility in the numbers. "

In a separate survey, estate agent Knight Frank said strong demand for second homes could cause house prices to more than double in sought-after areas.

It found that the number of second homes in England rose to 245,384 in 2009, some 2.6% more than during the previous year.



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