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Snow and end of stamp duty holiday leads to first property price decrease in the UK for nine months

Property prices dropped 1% last month according to the latest index published by the Nationwide Building Society and the real estate market could now be losing momentum, according to its chief economist Martin Gahbauer.
‘At this stage, it is difficult to gauge how much of the drop in housing activity is attributable to one-off factors and therefore whether February’s fall in prices is just a temporary blip or the start of a new trend. Even without the impact of stamp duty changes and the snowy weather, it would have been surprising to see house prices maintain the very strong upward momentum seen for most of 2009,’ said Gahbauer.
He pointed out that a pause in the upward trend in property prices will, however, be a relief to potential first time buyers who are no longer benefiting from the stamp duty holiday and for whom affordability had begun to deteriorate again over the course of 2009.
Separately the latest figures from the Land Registry show that in January average property prices were up 2.1% on December giving an annual price increase of 5.2% with London seeing the steepest increase of 10.5% but the North East seeing prices fall by 3.4%.
The data, which is based on completed sales unlike Nationwide’s index which reflects agreed prices at the mortgage approval stage, showed prices were up by 5.2% in the last 12 months but January was only the second month in a row that the figure was positive. However the Land Registry said that while not all regions were recovering at the same rate, it was clear that overall prices are increasing.
But Howard Archer, chief UK economist at IHS Global Insight, said he believed property prices would ‘suffer a significant correction in 2010 and will probably be no better than flat over the year’ as price rises have been out of kilter with the overall economic fundamentals.
‘If properties remain scarce for some considerable time to come, then house prices will be supported to some extent by this. It will increase the risk, though, that an eventual correction in house prices will be appreciable,’ he added.
According to Royal Institution of Chartered Surveyors chief economist Simon Rubinsohn there is no point in putting too much emphasis on individual monthly figures so the Nationwide index is not necessarily the start of a trend.
‘The Land Registry confirms that house prices did rise sharply in January. This firm picture had been signalled in previous releases by both mortgage lenders and the RICS Housing Market Survey. However, the Nationwide Building Society numbers for February cast some doubt on whether this trend can be sustained. While bad weather may have played a role in knocking both activity and prices this month, RICS believes that there shouldn’t be too much emphasis placed on monthly volatility in the numbers,’ he explained.
‘The underlying trend in the Nationwide data is still pointing toward an annualised increase in prices of more than 6%. That this is down from nearer 15% last autumn is something to be welcomed given the difficulty many first time buyers are already having in getting a foot on the property ladder,’ he added.
He said that RICS expects prices in general to continue to edge upwards over the coming months although the picture is likely to stabilise in the latter part of the year as mortgage costs begin to increase.