House price rises slowing down

THERE are more signs that interest rate rises are starting to bite, with house price inflation falling for the third month in a row, new figures reveal today.

Average property prices in the UK rose by just 0.4% in June, down from 0.6% in May and around 0.7% in April, according to the latest research from property specialists Hometrack.

The average UK home now costs £152,000.

The number of new buyers also fell by 0.6%, while the average sales price as a percentage of the asking price dropped slightly, from 96.4% to 96.2%.

For the first time this year the average time taken to sell a property has risen, from 4 weeks in May, to 4.2 weeks in June.

Earlier this month the Bank of England's monetary policy committee (MPC) increased the base rate for the fourth time in eight months, in an attempt to put the brakes on the overly buoyant housing market. It is now at 4.5% and pundits predict it could reach between 5% and 5.5% by the end of the year.

And it seems to be having an effect, with signs that the property bubble may be deflating becoming more frequent in recent weeks. Figures published by the Council of Mortgage Lenders (CML) last week revealed mortgage lending fell by more than £1.2bn from April to May. The number of home loans also dropped from 118,000 to 103,000 over the same period.

Bank of England Governor, Mervyn King, also recently warned homeowners that a fall in house prices was increasingly likely, following another year in which property values had continued to soar.

Property specialist Hometrack, which carries out a monthly survey of the housing market, believe it is an indication the market is finally on the verge of slowing down.

John Wriglesworth, housing economist at Hometrack, said: 'While house prices are continuing to rise, there are the first signs the market may be easing. New buyers have reduced and excess demand has fallen for the first time this year.'

Yet what the figures reveal is far from a slump in property prices. Every county, bar Oxfordshire, saw prices rise in June, with the highest increases reported in Suffolk at 0.9%, while Buckinghamshire, Devon and north London all saw prices rise by 0.8%.

Based on the national average property price of £152,000, this means homeowners in Suffolk would have seen their home rise in value by around £150 in June.

City hotspots include Ipswich, where prices rose by 2.4% in June, Middlesborough where the average price increased by 2.1% and Manchester where prices rose by 1% on average.

Homeowners in Oxford were not so lucky, with house prices falling by around 1.4% on average in June. Other areas where prices dropped include Croydon (by 0.2%) and Warwick (by 0.1%). House prices in Winchester, Guildford and Bournemouth remained static.

But for anyone panicking there is a world of difference between a property slowdown and a property crash, and the latter seems far from inevitable or even likely, say Hometrack.

'Speculation of a pending market crash has no basis in foundation. Interest rates still remain historically low, unemployment remains at a record low and incomes are rising strongly,' said Wriglesworth. 'All the signs suggest we are heading for a soft landing after the heavy price rises of recent years.'