UK residential property prices start falling as lending remains restricted

Residential property price fell in July as buyer demand remained weak and there was a substantial drop in annual house price inflation, according to the latest index from the Nationwide. 

It shows that prices fell by 0.5% in July and the annual rate of house price inflation fell from 8.7% to 6.6%. This is the first price fall in the Nationwide index since February.
 
The quarter on quarter rate of change, a smoother indicator of the near term price trend, fell from 1.7% in June to 1.3% in July, significantly below the peak of 4% reached in September 2009.
    
‘So far in 2010, demand from buyers has made little progress in building upon the recovery seen during much of 2009. 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 prior to the financial crisis and recession,’ said Martin Gahbauer, Nationwide’s chief economist.
 
‘A combination of restrictive credit conditions and uncertainty about the future economic outlook continues to limit the pool of buyers to those with relatively large financial resources. Many potential buyers still lack the confidence to purchase their first home or trade up when faced with uncertainty over future income and employment prospects,’ he explained.
 
The fall in prices was not unexpected as many analysts, including Nationwide, have been forecasting that prices would level out and even fall in the second half of 2010.
 
Simon Rubinsohn, Royal Institution of Chartered Surveyors chief economist said its own research shows that new instructions are now outstripping new buyer enquiries. He points out that there will be regional variations in price rises and falls with London, the South East and Scotland showing the greatest level of resilience.
 
The latest index from the UK Land Registry confirms that until now prices have been easing upwards. The figures, based on actual sales, show that in June prices were 0.1% above those in May and on an annual basis are 8.4% higher putting values at the same levels as they were in the summer of 2006.
 
All regions in England and Wales experienced increases in their average property values over the last 12 months, it also shows. London saw the biggest annual increase at 12.2% while the North East saw just 0.7%.
 
But the National Association of Estate Agents is warning that although the market has been slowly recovering lending is still unfairly restricted. A quite mortgage market is still likely to continue, according to the Council for Mortgage Lenders after the latest figures from the Bank of England show that gross lending in June was £12.9 billion, lower than the CML’s earlier estimate of £13.1 billion.
 
And the number of approvals for both house purchase and remortgaging were lower than in June last year. The number of loans approved for house purchases fell by 4% on a seasonally adjusted basis and was down 6% on a year ago.
 
‘This is the first time the annual rate has turned negative since April last year, but it is likely to remain so in future months as comparison is made with a rather stronger market towards the end of last year,’ said CML economist Paul Samter.
 
Remortgaging activity remains at exceptionally subdued levels with 24,949 approvals in the month, down 3% from May and consistent with refinancing activity