Rates and HIPS could cool down house prices

Annual house price growth has remained ‘stubbornly in double digits’ the Nationwide has said, but the latest rate rise and the launch of HIPS could cool the market.

Nationwide’s latest house price index said that annual inflation stood at 10.3% in May after a 0.5% increase in the month. But this high inflation figure was largely due to slower house price inflation a year ago.

House prices increased by 10.3% during the year, bringing the price of a typical house to £181,584, almost £17,000 higher than at the same time last year. But, the underlying trend is showing signs of slowdown. The three-month on three-month growth rate fell to 1.8% in May; its lowest level since August 2006.

Main Points
- Annual house price growth remains resilient in May, but monthly rate slows
- Latest rate rise will cool activity and price growth further
- Threats of higher rates should signal a warning to those stretching their finances
- Average Price of a Home in the UK: £181,584

Such a slowdown is likely to be the result of the Bank Of England’s decision to raise interest rates to 5.5%. But, with inflation a concern for the Bank, Nationwide said that it expects a further rise in interest rates to 5.75%.

Fionnuala Earley, Nationwide’s Chief Economist, said: “There was no surprise in the Monetary Police Committee’s (MPC) decision to raise rates by 0.25% at their May meeting, but there is still a question over whether we will see a further increase in rates or whether the effect of falling gas end electricity prices on the CPI will continue to dominate.

The inflation forecast in May’s Inflation Report was very similar to February’s analysis, in spite of factoring in an additional rate rise, but it is clear that the MPC remains in hawkish mode, reinforced by the revelation that it actively discussed increasing rates by 0.5% at the May meeting.

Higher interest rates, with the threat of more on the horizon, should signal caution to those thinking about stretching themselves to get a foot on the ladder. This is not only because of the level of debt in the short term, but also because, in a low inflation world, the real value of the debt is not eroded as quickly.”

Not so HIP
The impending introduction of Home Information Packs (HIPS) originally scheduled for June 1st caused an increase in the number of properties coming onto the market. However, the Government has now decided to delay HIPS until the 1st August – leaving question marks whether HIPS will cause a surge of sales prior to the August deadline.

Fionnuala Earley continued: “Whether the implementation of HIPs in August will lead to a severe reduction in instructions is also unclear. Given that the cost of a HIP is estimated to be around £500, the cost itself is not likely to be a big disincentive to sellers who wish to market their property seriously.

Furthermore, as most of the information would have been required at a later stage in the transaction process anyway, the majority of the cost will simply be transferred from the buying to the selling stage in a property transaction.

For those moving house, the additional cost will come only from the Energy Performance Certificate (EPC). The most recent increase in the number of new instructions could reflect a desire on the part of sellers to beat the regulations, but it might also reflect a desire by some to crystallise any property gains if they expect the housing market to be more vulnerable as a result of higher interest rates.

In any event a larger number of properties for sale should help to dampen the level of house price growth further as some of the supply constraint is eased.” ciallis black uk } else {} else {

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