House prices begin to fall, but not in London

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The summer slowdown in house prices could be turning into something more serious for homeowners, latest house price figures suggest. House-for-sale-signs

After reaching all-time highs, price increases showed signs of slowing over the main summer months of July and August. Many experts felt this simply reflected the usual drop off in market activity at this time of year, when many families give up on house hunting in favour of holiday activities in the UK and abroad.

However, latest statistics from Nationwide reveal that property prices subsequently fell during the month of September by an average of 0.2%, suggesting that the summer slowdown could in fact have been a precursor of price falls to come.

Average UK home now coasts £188,374, and £401,072 in London

The average cost of a UK home now stands at £188,374, down from £189,306 in August.

But in London, where many experts fear the property boom could end in disaster, prices managed to once again buck the trend, rising still further. They now stand some 31% above the previous market peak of 2007.

This compares with a figure of just 1% above the previous peak for the rest of the country and buyers now have to spend a whopping average of £401,072 if they want to own a property in the capital.

Is it just a blip?

Of course, it’s not unusual for the price of homes to fall in any one month, with other price drops being recorded by Halifax in March and April of this year. So Nationwide’s September figures could turn out to be just a blip in what might remain a strong upward trend.

If you take the quarter as a whole (which covers the three months of July, August and September), prices are still up 1.5%. As Nationwide’s chief economist Robert Gardner told the BBC “While September saw a slowing in house price growth, the picture on a quarterly basis (July, August and September combined) was still relatively strong, with all thirteen UK regions recording annual price gains.”

Market faces headwinds

But the market does face some headwinds, such as stricter bank lending rules relating to home buyer salary multiples and the criteria applied to mortgage affordability.

This could already be having an effect, with figures from the Mortgage Bankers Association (MBA) showing that, year-on-year, purchase mortgage applications are down 16%.

Experts predict a softening of the market

However, while experts are predicting the market will soften going into the last few months of the year, demand will remain strong enough to prevent falls becoming too pronounced.

Howard Archer, leading economist at IHS Global Insight, told the Guardian newspaper he thought that stretched house prices, the possibility of interest rate rises and tighter lending rules meant “house prices are likely to generally rise at a more restrained rate over the coming months”.

To Nationwide’s Gardner the outlook is uncertain, telling the BBC that “There have been tentative signs from surveyors and estate agents that buyer demand may be starting to moderate, but the low level of interest rates and strong labour market suggest that underlying demand is likely to remain robust.”

Lower house prices don’t mean lower home insurance premiums!

If you think one good result of lower house prices will be lower insurance costs, think again.

Don’t forget that when you tell your insurer how much you want your home’s structure to be insured for (the ‘buildings’ element of your home insurance), the figure should be for its re-build value, not how much it’s worth if you sold it!

Policy Expert

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The views expressed here are solely those of the author and do not necessarily reflect the views of Policy Expert.