Slowing housing market: autumn breather or end of a trend?

Houses and questions

The UK housing market slowdown is well established, with the latest Halifax house price index showing a third consecutive fall in the quarterly growth rate. Prices rose by just 0.8% between August and October, the smallest increase since December 2012 (which saw 0.7% growth over the quarter).

Comparing the latest quarter to the same period in 2013, prices are still up 8.8% over the year; but they have dropped from 9.6% in September, and from a peak of 10.2% in July.

That decline in growth reflects five months of modest falls in house prices in the past year: over October they fell by 0.4%.

The fall in prices has been accompanied by a slowdown in activity, with sales of homes, at 97,450 in September, down for the seventh successive month and now at the lowest level for 11 months.

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Long-term trend or seasonal slowdown?

The number of sales in September was 11% below February's peak, according to HM Revenue & Customs.

Martin Ellis, housing economist at the Halifax, points out that "the associated weakening in demand has brought supply and demand into better balance".

It's not clear at this stage whether the cooling of the market represents "a long-term trend or simply a combination of the traditional seasonal slowdown and the market taking a short breather", says Jonathan Hopper, managing director of Garrington Property Finders. "If it's the latter, we should see the market start to pick up in the New Year."

Meanwhile, he adds, the market feels "more stable and restrained", and more price-sensitive now. "Sellers are having to be more willing to negotiate to secure an offer. But there is no suggestion that it's topped out and we're about to see prices plummeting."

Ellis comments that the economy continues to grow and employment numbers are still improving, which "should support housing demand over the coming months'. But Halifax research has found that borrowers are nervous about the impact of an eventual rate rise on repayments, "which could curb buying intentions".

Mortgage approvals fall

That trend seems to be in evidence. The number of new mortgages approved has fallen for the third month in a row, reaching a 14-month low. Bank of England figures show the volume of mortgage approvals has fallen 20% since the January 2014 peak.

Alex Gosling, managing director of online estate agent Housesimple, sees this as a potential worry.

"It's too early to say whether this is down to buyers stopping searching or simply that they are being made to think twice by tougher lending criteria," he says.

"Uncertainty over when the inevitable interest rate rise will come is clearly playing on many would-be buyers' minds, and even if mortgage activity does kickstart, it's unlikely to reach the heights it has done over the past year."

But buyers are being helped by the fact that lenders are working to attract new business. "There are some fantastic fixed rate deals on the table," says Hopper.

Overall, "the property market's fundamentals are strong", says Gosling.

"There's every chance that after the Christmas lull it will return to growth, albeit at a more sensible level than this year."

This article was written for our sister website Money Observer