Money News
Latest data (May) from the Nationwide Building Society paints a mixed picture on the housing market front. Year-on-year inflation stubbornly remains in double digit territory, yet the underlying growth rate on a quarter by quarter basis has slipped to a 21-month low.
Prices rose by 0.5% in May and whilst down on April's 0.9%, year-on-year prices actually increased to 10.3% (10.2%). Meanwhile, the average price of a property now stands at £181,584 (£180,314).
Despite the headline numbers Fionnuala Earley, Nationwide's Chief Economist, says the housing market is still showing signs of cooling and should therefore add little to the upside inflationary risks being considered by the Bank of England's interest rate setting committee as it determines rate policy over the coming months.
"The three-month on three-month rate of growth still shows a clear downward trend as the effect of earlier increases in interest rates takes hold.
"Higher interest rates, with the threat of more on the horizon, should signal caution to those thinking about stretching themselves to get a foot on the ladder. This is not only because of the level of debt in the short term, but also because, in a low inflation world, the real value of the debt is not eroded as quickly. As a result the burden of servicing that debt remains heavier for much longer," says Earley.
Earley adds that the recent increase in the number of new instructions could reflect a desire on the part of sellers to beat the (since postponed) Home Information Pack regulations. But it might also reflect a desire by some to crystallise any property gains if they expect the housing market to be more vulnerable as a result of higher interest rates. In any event a larger number of properties for sale should help to dampen the level of house price growth further as some of the supply constraint is eased.
Meanwhile, updated lending figures from the Bank of England show the recent interest rate hikes beginning to bite - the increase in total net lending to individuals in April (£9.4 billion) being lower than the increase in March and the previous six-month average.
The twelve-month growth rate fell 0.1 percentage points to 10.4%, while the three month annualised growth rate fell by 0.4 percentage points to 9.7%.
Within the total, the increase in net lending secured on dwellings (£8.9 billion) was below the increase in March and the previous six-month average. The twelve-month growth rate meanwhile fell 0.1 percentage points to 11.4%, while the three month annualised growth rate also fell, by 0.4 percentage points to 10.9%.
The number of loans approved for house purchase (107,000), those for remortgaging (98,000) and those for other purposes (72,000) were all lower than in March.
Elsewhere, the increase in net consumer credit in April (£0.5 billion) was lower than the increase in March, while the rise in net credit card lending of £0.1 billion was also lower than in March. Net other loans and advances rose by £0.4 billion (lower than the increase of £0.5 billion in March).
The annual growth rate of consumer credit continued to fall, by 0.3 percentage points to 5.4%, and the three-month annualised growth rate also fell by 0.3 percentage points to 4.1%.
31 May 2007 © Moneyextra.com
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