House prices softening

UK house prices fell 0.5 per cent from January to February, new figures from the Office of the Deputy Prime Minister (ODPM) have found.

15:55 11 April 2005

UK house prices fell 0.5 per cent from January to February, new figures from the Office of the Deputy Prime Minister (ODPM) have found.

The average house in the UK cost 179,491 in February - 10.5 per cent higher than at the same time last year, according to the ODPM. This, however, represents an increase on January's inflation figure of 10.0 per cent.

But this increase is not necessarily a sign of a strengthening market.

"The rise back up in annual house price inflation to 10.5 per cent in February from 10.0 per cent in January reported by the ODPM should not be taken as a renewed sign of strength in house prices. Rather it reinforces the overall impression that house prices are fluctuating around a steadily softening trend," Howard Archer, UK economist at Global Insight, explained.

But mortgage holders should not be overly concerned, as all the signs point to a stabilisation and not a crash.

Mr Archer noted: "Latest data and survey evidence relating to housing market activity has largely shown stabilisation at a low level (and in some cases very modest improvement), following the marked slowdown in the second half of last year ... this suggests that while house prices will continue to be soft in the near term at least, they remain unlikely to plunge."

The ODPM said that the small fall in UK house prices between January and February could be attributed to falls in the prices of all property types except flats.

Prices for detached houses fell 1.2 per cent, the value of semi-detached houses fell 0.6 per cent. Prices for flats rose 0.2 per cent.

Regionally, England and Scotland saw a rise in annual house price inflation, while Wales and Northern Ireland saw a fall.

The highest inflation in England was in the North East and Yorkshire and the Humber at 18.2 per cent. Inflation was under 10 per cent in the East and London and lowest in the South East, where annual house price growth fell from 5.3 per cent in January to 5.0 per cent in February.

There was bad news for first-time buyers as well, with prices for first homes in February 15.4 per cent higher than the same month last year. The average price paid by first time buyers across the whole of the UK was 145,887 in February, according to the ODPM.

However, analysts are expressing caution over the Governments figures, as they are seen as somewhat historical.

"It should be noted that the ODPM data tends to provide lagging evidence on house prices, as it calculates its index at the time when house purchases are completed. On average, these reflect offers that were made two months earlier. In contrast, both the Nationwide and Halifax lenders measure house prices at the stage when mortgages are approved," Global Insight's Mr Archer said.

Halifax and Nationwide both said that house price inflation in March fell below ten per cent for the first time since 2001 and that house prices have barely moved in the last six months.