Pace of house price falls slows in June
The pace of house price falls slowed significantly in June, with average values sinking by just 0.9% compared to falls of 2.5% the previous month.
However, on an annual basis, house values are now down by 6.3% from 2007, compared to 4.4% last month. The latest figures, from Nationwide Building Society, show that the average price of a property in the UK is now £172,415.
Fionnuala Earley, chief economist at Nationwide, says: “Prices in June are now 6.3% lower than this time last year and have fallen 7.3% from their peak last October. However, the strength of house price growth up until last year means that prices are still 4% higher than two years ago and 9% higher than three years ago.”
She adds that reigniting buying and selling activity in the housing market is key to sustaining house prices. Online property valuer Hometrack recently revealed that there has been a 52% reduction in the number of new buyers since the start of the credit crunch. As a result, there are estimated to be a record one million unsold properties on the market, with sellers under pressure to drop their asking prices in order to compete.
Earley says changes in house transaction levels are one of the best indications of the likely path for property prices, with a few months' delay until house purchase approvals feed through to slowing annual house prices.
With the number of house purchase approvals per month now at historic lows, and running at less than half of its long run average rate during May, the decelerated house price falls seen in June may not be long lasting.
Early adds: “With house purchase transactions so far below their long-term trend it seems unlikely that there will be any rapid turnaround in housing market fortunes in the coming months. However, as prices continue to fall affordability measures become more favourable for those in a well financed position to be able to buy.”
Interestingly, despite tightening credit conditions, first-time buyers account for about one third of house purchase transactions, exactly in line with the average over the last three years.
The fall in housing transactions has led to renewed calls for stamp duty reforms, as a means to lubricate the housing market. The Royal Institution of Chartered Surveyors (RICS) says the current system is no longer “fit for purpose” as the levy presents a major barrier to people wishing to purchase a property – especially first-time buyers, who are so key to the health of the housing market.
RICS is calling for a two-tier system to be introduced, and offsetting for first-time buyers and those looking to downsize.
Currently, stamp duty is only paid on properties over £125,000; buyers pay 1% of the value on properties costing between £125,000 and £250,000, 3% on properties between £250,000 and £500,000 and 4% if their property costs more than £500,000.
The proposed reform would see buyers exempt from paying stamp duty on the first £150,000 of their new home. Any additional value up to £250,000 would be taxed at 2.5%, with a 5% levy applied on the value over £250,000.
RICS says this would cut stamp duty significantly for 99% of homebuyers, and would cost the government a quarter of its stamp duty revenue in 2008/09.
The group also wants to see the thresholds for stamp duty raised annually to reflect house price inflation.
A spokesman for RICS says: “The current stamp duty regime is unfair, inefficient and long overdue for reform. [It] distorts the property market and impacts on both buyers and sellers. For first-time buyers, it creates another hurdle on-top of the deposit.
“A two-tier marginal rate system for residential stamp duty would be fairer and correct the distortions of the current system whilst increasing accessibility and fluidity throughout the market.”
Other industry bodies say that the suspension of stamp duty for first-time buyers could improve their chances of getting mortgage credit. Mike Ockenden, director of trade body, the Association of Home Information Pack Providers, says: “With mortgage lenders tightening their credit criteria, every penny counts for those wishing to move home or buy their first property. By suspending stamp duty on lower cost homes many would find that they could now afford to move or in the case of first-time buyers meet lenders criteria.”
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.