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Putting rate rise on hold offers hope for house prices

by: Mike Jones
  • 21/06/2011
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Putting rate rise on hold offers hope for house prices
The Halifax house price index showed another miniscule movement for the month of May.

The month saw a 0.1% rise in prices, but as ever, it’s the longer term, three-month on three-month figure that gives us the best indicator of what’s really happening out there.

Prices in the three months to May stood 1.2% lower than in the three months to April, showing that house prices are drifting modestly downwards. The average house price in May was 1.4% lower than the end of 2010.

So, how many of us are seeing a springtime leap in the property market?

Well, it’s still clear that there’s no sign of pressures easing off on household finances. Whether it’s household bills increases, inflation, unemployment or low earnings growth, there is a lot of uncertainty for households. This, in turn, is leading to weaker confidence.

What’s becoming more apparent is that there’s not just one story to explain what’s happening across the UK.

The market moves in different directions in different parts of the country.

We’ve recently released some data that shows how prices have fared much better in areas where the local economy is more prosperous. Since 2008, the economy has been more resilient in the South, with a greater slowdown in activity in northern regions.

This has been reflected in house prices and the South continues to outperform the North.

However, weaker confidence affects homeowners across the UK, which means that we’re unlikely to see a huge increase in housing demand across the market any time soon.

And, with lower demand, we’re seeing downward pressure on prices.

Saying that, we’re still expecting things to look a bit brighter as we head into the second half of the year.

There is a growing consensus that a rate rise might not happen until next year. If rates stay low and we do see an improvement in the wider economy, housing demand should pick up, preventing a fall later in the year.

The new Halifax house market confidence tracker asked homeowners what they expect to happen to house prices over the year.

The inaugural set of results showed that more Britons expect house prices increase over the next 12 months. One in three respondents predicted that average UK house prices will rise this year, compared to 23% expecting a fall in prices, which points to some good news on the horizon.

Mike Jones is sales director of mortgages at Lloyds Banking Group

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