UK House Price Growth Slows but Inflation Slows More

The growth of prices in the UK housing market continues to slow down, having increased by just 0.1% over the last month, with the average house price in the UK now standing at £271,000.

The 12 month percentage change for October 2014 reported at 10.4%; 1.5% lower than the equivalent figures reported in September (12.1%). As usual, London (where the average house now costs £504,000) and the South East account for most of the growth in house prices generally, with average prices going up by 17.2% and 11.9% in the regions respectively. Without London and the South East, prices in the UK went up by only 6.7% from October 2013 to 2014. The North East saw the slowest growth ñ just 3.9%.

While this still means that we are seeing fairly significant growth from last year, it is at least slowing down, due to a variety of factors from general seasonal variations to increased mortgage regulations. On the latter point, the Bank of England joined forces with the FCA in early October this year to cap mortgage lending and introduce new measures and checks to try and ensure affordability and curb soaring house prices.

However, despite the slowed growth, it seems that house prices are still out of reach for many buyers, with Campbell Robb, CEO at homeless charity Shelter reporting that ìthe average house in England now cost[s] 10 times the average wageî. Indeed for first time buyers, the annual increase in price for October is at 12%, which is down from 13.3% in September, but is nonetheless dramatic, lightening wallets all over the country at a somewhat alarming rate.

The problem is in the relation between house prices, wage growth and inflation. The reports on slowed house price growth come at the same time as the announcement that national inflation as measured by the Consumer Price Index has dropped to 1%: its lowest level since 2002. What this means is that despite slowing down, house prices are still increasing faster than CPI inflation meaning that proportionally, it is still getting more and more expensive to buy property.

We are also seeing a reduction in wage growth, despite employment rates nearing an all-time high. The reason for this is that much of the increase in employment since the financial crisis has been in low skilled, low paid jobs, and so once again, potentially positive news in undercut by harsh reality.

This bittersweet news is tonally similar to George Osborneís recent announcement of a stamp duty overhaul, which promised to reduce the cost of property for 98% of buyers. While this was, and is, accurate in principle, many analysts remarked that the upshot of the changes would simply be sellers hiking up their prices in line with the reduction of tax, leaving buyers spending the same amount of money (or more in some cases), and simply leaving less money for the Treasury.

There is a small light at the end of the tunnel though, in the form of David Cameronís announcement of the starter homes programme, which offers a 20% discount to first time buyers who opt to purchase new (rather than existing) properties. Indeed to add to this, the price of new properties has increased by only 8.5%, 0.9% less than the national average.

And so as time goes on these announcements may get less bitter and more sweet, as slowed inflation looks to delay an interest rate hike and wage growth, while slow, is still broadly speaking steady.

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