 |
 |
House prices rise 3% in first half of the year.
• The price of a typical UK property inched
up by 0.1% in June
• Annual rate of house price inflation drops
Commenting on the figures Martin Gahbauer,
Nationwide's Chief Economist, said:
“The month of June presented a picture of broad
stability for the housing market. The price of a typical
UK property rose by a seasonally adjusted 0.1%
month-on-month (m/m), following a 0.5% increase
in May. The smoother 3 month on 3 month rate of
change rose marginally from 1.7% to 1.8%. By
contrast, the annual rate of house price inflation
dropped for the second consecutive month from
9.8% to 8.7%, reflective of the fact that house prices
were increasing at a faster pace this time last year.
Barring a significant pick-up in house prices over the
next few months, the annual rate of inflation should
continue to drift lower, in light of the very strong
price increases recorded during the summer of
2009. Over the first half of 2010, UK house prices
have risen by a cumulative 3.0%.
“Recent indicators point to an increase in the supply
of property coming to the market for sale, perhaps in
response to the abolition of HIPs in the opening days
of the new coalition government. With the level of
demand remaining broadly stable, this would in part
help to explain the recent slowdown observed in the
rate of house price inflation.
The Budget squeezes household incomes but implies
lower interest rates
“The emergency Budget announced on 22 June
marked the beginning of a period of fiscal austerity.
The most directly relevant policy change for the
housing market was the decision to raise the capital
gains tax (CGT) rate for higher earners from 18% to
28%. An increase in CGT for second home owners
had already been flagged well in advance of the
Budget. However, there were fears that the rate
could be brought into line with higher rates of
income tax, which could have seen it rise to 40% or
even 50%. The actual increase has therefore turned
out to be relatively modest.
“More important in terms of the short-term impact
on the housing market was the decision to
implement the change with immediate effect. Had
there been a delay in implementation, it is quite likely
that many second home owners would have chosen
to sell early in advance of the tax increase. This could
have shifted the supply-demand balance quite
markedly in favour of buyers and put downward
pressure on house prices. As a result of the
immediate implementation, however, there are
unlikely to be any significant supply distortions in the
near term resulting from the tax change.
“Looking beyond the short-term, the spending cuts
and tax increases in the Budget will clearly put a
squeeze on household disposable incomes, which are
undoubtedly an important driver of house prices.
Given the already elevated level of the house price to
earnings ratio, this limits the scope for property
values to maintain the very strong upward
momentum that we have seen over the last year.
However, the acceleration of the fiscal consolidation
means that interest rates are likely to be lower than
they otherwise would have been, which should
provide some offsetting support to households and
mortgage affordability. To the extent that an
improvement in the public finances raises confidence
in interest rate stability, it could even attract more
buyers into the housing market over time.
“Provided the economy does not suffer a relapse into
recession, the net impact of the Budget on the
housing market and house prices should be relatively
neutral. This is consistent with the relative stability
seen in the housing market during the last major
fiscal consolidation in the mid-1990s.”
Download the full pdf repoort
Download PDF |
|
|
