Newsletter 4
House Prices
What is the true level of house prices? With so many different figures and indices telling different stories, which one should we believe?
Academetrics are the producers of the respected FT House Price Index which includes cash purchases and is the only index to use all of the Land Registry data. As such, it aims to provide a factual record of domestic property prices in England and Wales and a true guide to house price inflation.
Dr Peter Williams, Chairman of Acadametrics, comments, "On a monthly basis, house prices in England and Wales fell by 1.3% in August making this the sixth consecutive month of nominal price falls recorded by the FT index - the first time this has happened since November 1992.
"House prices peaked in February of this year at £231,908, since when they have fallen by around 4.0% or £9,452 to £222,456; this takes the market average price back to where we were in May 2007. This is not a problem for the vast majority of households - nor is it market transforming in affordability terms.
Ij – those who have purchased in the past 12-18 months at a high loan to value therefore do need to start assessing the affordability of their mortgages in the coming months. Contact Us for a budget planner or to discuss your situation.
"The annual rate of change of -2.2% is our lowest reported figure since May 1993 and it is the twelfth month in succession in which the annual rate has fallen in nominal terms.
"Over the last two years we have regularly commented on the London market being out of line with all the other parts of England and Wales. As we expected, however, the differentials in rates of change are now diminishing. If London is excluded the monthly figure is unchanged at -1.3% and the annual rate is 0.4% lower at -2.6%.
"Prices in all regions in England and Wales are now declining month on month and seven regions are now negative on both a monthly and an annual basis. The most severe annual falls are in East Midlands and Wales, down by 3.0% or more. The scale of the recent change in price trends is dramatic, not least in London, where the annual rate of increase has declined from over 18% in August 2007 to 1.9% in July 2008, with every likelihood that this downward trend will continue. Looking at price trends in local authorities on a three month averaged basis, there are now only two London boroughs and one county/district with annual price inflation still in double figures. On the other hand, there are now nine London borough and sixty-one districts where prices have fallen over the past year.
ij – unfortunately this means that the loan to value of your mortgage may have risen. For example, if you have a mortgage of £200,000 on a property worth £300,000, you are at 66% loan to value and therefore usually able to obtain a competitive rate as you are below the key 75% tier. However, if you property value falls to £250,000, your £200,000 mortgage is now 80% of your property value, meaning restricted access to the BEST rates.
"Although mortgage supply continues to be a very serious problem, it is clear that demand has also faltered in the light of these market trends. Consumer confidence continues to fall reflecting the daily ‘bad’ news, the likely length of an extended housing market downturn and threats of a wider recession. Settling prices in such an environment is difficult. Prices achieved at auctions have been falling as buyers adjust their expectations downwards and we have seen the rise of gazundering in the mainstream market. The big question going forward is when and at what level will the market bottom out."
ij – "gazundering " is the practice of reducing your previously agreed offer on a property just before exchange of contracts. Generally thought to be in bad taste. However, there may be genuine reasons for reducing your offer, if for instance your survey highlights defects on the property.
"The FT index, like the Land Registry and CLG indices, is based upon the final selling price of a property and it is the only index that is based upon all property transactions in England and Wales (i.e. all cash sales and mortgage backed transactions). As such, it is bound to be different from the mortgage offer indices, published by Nationwide Building Society and HBOS, which have been reporting more dramatic declines based on their own lending data. Since February 2008, these two mortgage offer based indices have diverged even further from the sales transaction based indices. Setting aside the obvious generic difference between the different types of indices, the fact is that it is not entirely clear why this should have happened."