House prices fall by 0.5%
House prices have fallen for the first time since February, prompting fears that the housing market recovery is over and a downward trend will set in for the rest of the year.
Prices tumbled by 0.5% this month, according to Nationwide. There was also a sizeable decrease in the annual rate of house price inflation, which fell from 8.7% in June to 6.6% in July.
Martin Gahbauer, Nationwide's chief economist, comments: "Despite the introduction of a second stamp duty holiday for the vast majority of first-time buyers and record low interest rates, the number of properties changing hands across the UK is still running at only half the levels seen before the financial crisis and the recession."
The average house price for July was £169,347, a decrease from £170,111 in June. According to Gahbauer, restrictive economic conditions and apprehension about the future continue to limit numbers of house buyers.
"Many potential buyers still lack the confidence to purchase their first home or trade up when faced with uncertainly over future income and employment prospects," he adds.
There is also concern about the supply-demand balance becoming even more stretched, as there has been a big shortage of buyers recently, and an even more severe shortage of properties for sale.
Gahbauer thinks it will take several months to establish whether house prices are simply oscillating around a flat price trend or if a period of downward trending prices is in store.
There were also gloomy predictions this week from the National Institute of Economic Research that house prices will fall 8% over the next five years, when inflation is considered.
This means the property market in 2015 will have returned to the levels of 2003, which could put millions of homeowners in negative equity.
Meanwhile a report from the Land Registry yesterday shows house prices are currently back at the same level as they were in 2006.
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.
The circumstances in which a property is worth less than the outstanding mortgage debt secured on it. Although it traps householders in their properties, the Council of Mortgage Lenders (CML) says there is no causal link between negative equity and mortgage repayment problems. At the depth of the last housing market recession in 1993, the CML estimated 1.5 million UK households had negative equity but most homeowners sat tight, continued to pay their mortgages and eventually recovered their equity position.
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).