House Sales - House Prices Stall
Higher interest rates may be hitting the house market as house price growth stalled in July, bringing annual growth back down into single digits.Fionnuala Earley, Nationwide's Chief Economist said: "After surprisingly picking up steam in June, house prices were almost unchanged in July, and their underlying trend growth resumed a downward path."
House prices managed a seasonally adjusted gain of only 0.1% in July, the slowest pace of growth since April 2006.
The marked slowdown brought the annual rate of house price inflation down to 9.9%, following three consecutive months of double-digit growth, with a typical UK property cost an average of £184,270 in July.
Nationwide added that The Bank of England now faces a tough balancing act in the months ahead, with tightening consumer finances on the one hand and resilient economic growth on the other. Fundamentals do suggest that household finances are coming under considerable pressure, and that house prices and consumer spending will both see a slowdown in the second half of the year.
On the impact of interest rate rises for borrowers, Fionnuala Earley said: "Since the August 2005 rate cut, close to 70% of borrowers have taken out fixed-rate mortgages, with most of these deals lasting for 2-3 years. It is estimated that over the next 18 months, nearly two million borrowers will see their fixed rate deals expire, leaving them with the choice of reverting to the standard variable rate or re-mortgaging onto a new fixed rate deal or tracker mortgage. Most borrowers are likely to take the option of switching to a fixed rate, given that these are considerably below the standard variable rate.
A borrower looking to refinance a 2-year fixed rate mortgage from the mid-2005 to mid-2006 period is likely to bear nearly the full brunt of the MPC's recent tightening in one go. For example, a homebuyer who bought a typical flat at a 75% loan-to-value ratio in August 2005 would see a £78 increase in monthly payments when re-mortgaging, excluding the effects of any fees. Assuming the borrower earns the UK average income, the payment shock from re-mortgaging would eat up about two thirds of the increase in monthly take-home pay that the individual has seen in the last two years.
When the effects of inflation over this period are added, the squeeze on finances becomes even more acute and further highlights the risk of monetary overkill."
0 Comments:
Post a Comment
Links to this post:
Create a Link