Annual house price growth has fallen to its lowest rate in four years, driven by the growing squeeze on household finances and higher stamp duty.
According to the latest Halifax House Price Index, annual house price growth eased to 2.6% in June, down from 3.3% in May – the lowest rate since May 2013.
Quarterly house price growth fell 0.1% between April and June.
On a monthly basis, house prices dipped 1% – taking the average price of a property to £218,390.
Martin Ellis, Halifax housing economist, said: “Although employment levels continue to rise, household finances face increasing pressure as consumer prices grow faster than wages.
“This, combined the new stamp duty on buy-to-let and second homes in 2016, appears to have weakened housing demand in recent months.”
By contrast, the latest Nationwide house price index shows that house prices rose 1.1% in June, reversing the previous three months’ falls.
Experts believe the ongoing uncertainty surrounding Brexit compounded by the snap election have contributed to the slowdown in the housing market.
The figures add to the mounting collection of data which points to the housing market becoming increasingly affected by the growing squeeze on incomes and affordability pressures.
Since last year’s Brexit vote, consumers have faced a loss in spending power as a result of rising inflation following a fall in the pound.
Combined with slowing wage growth, households are beginning to feel the pinch as their disposable incomes start to fall.
Since April 2016, property investors looking to buy a second home have faced a 3% stamp duty surcharge as part of the Government’s plans to curb the buy-to-let market and free up property for first-time buyers.
Buy-to-let lending has had a weak start to 2017 and the sector’s contribution to overall net mortgage lending has fallen considerably over the last year.
The Council of Mortgage Lenders has had to revise its buy-to-let growth forecast downwards as a result of regulation changes.
It now expects buy-to-let lending of £35 billion in 2017 and £33 billion in 2018, compared to the £38 billion in each year made in December’s forecast.
Samuel Tombs, chief economist at Pantheon Macroeconomics, said: “The underlying trend in prices probably is flat, with the impact of weak underlying demand being offset by a sharp contraction in the number of homes for sale. The trend in prices likely won’t improve in the second half of this year, though.
“The recent pickup in wholesale financing costs, due to speculation that the MPC will raise interest rates soon, will prevent mortgage rates from falling further.”
Despite the dip in prices, many commentators believe the chronic under-supply of housing combined with and low interest rates means a major downturn or collapse in the market is unlikely.
“A continued low mortgage rate environment, combined with an ongoing acute shortage of properties for sale should help continue to underpin house prices over the coming months,” said Ellis.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “We should take some comfort from the Halifax figures because they are showing a fairly steady market at a time when we would have expected a bit more uncertainty in the period leading up to the general election. It is mildly encouraging to note that the modest price increase is based on, not so much a shortage of stock but a reasonable number of approvals for the time of year.
“Another positive sign is the number of first-time buyers who are active. On the ground, we are finding that they are taking the place of buy-to-let investors hit by increases in tax and legislative responsibilities.”
Brian Murphy, head of lending for Mortgage Advice Bureau, said the data from Halifax was not surprising and was in line with industry forecasts for the year.
“What’s also positive news is that mortgage approvals for home purchases increased slightly (0.2%) between April and May, and overall figures have remained steady each month since November last year.
“This would potentially suggest that the market has found a new level and could remain steady over the coming months, due to the ongoing market fundamentals of paucity of stock versus resilient buyer demand in most parts of the country, and increasing competitive deals being released by mortgage lenders.”
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