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House Price & Lettings Survey

from "UK Landlord" magazine, May 2007

House Prices Keep on Rising

House prices dropped slightly in February 2007, according to figures released by the Department for Communities and Local Government (DCLG). The figures show that the mix-adjusted average house price in the UK in December 2006 stood at £205,102 down from £205,399 in January 2007 (not seasonally adjusted).

However, the overall house price picture is one of rising prices, with UK annual house price inflation in February 2007 at 12.1 per cent, up from 10.9 per cent in January 2007. Annual house price inflation in London was 16.7 per cent in February 2007, up from 13.2 per cent in January.

The UK annual house price inflation rate for the 3 months to February 2007 was 11.0 per cent and 13.9 per cent in London.

Between January and February there was a fall of 0.1 per cent in the prices of properties bought compared with a decrease of less than 1.2 per cent over the same period last year which explains the overall increase in the inflation rate.

The fall in UK prices between January and February, according to DCLG, can be attributed to falls in average prices for bungalows (1.1 per cent), terraced houses and detached houses (both 0.5 per cent), alongside a slight rise in the price of flats (0.9 per cent) and semidetached houses (0.1 per cent).

Data from the Land Registry, Halifax, Nationwide and Rightmove confirm the continuing upward trend:

• Halifax also reported an upward trend, with house prices going up by 1.0 per cent in March, leaving the annual change rate of house price inflation at 11.1 per cent. Halifax believes the market will continue to be driven up by a shortage of new house building. The average UK house price was recorded as £194,362. Overall, house prices increased by 2.8 per cent in the first quarter of 2007, well below the 4.2 per cent rise in the fourth quarter of 2006.
• Nationwide concluded less positively that the spring 2007 housing market had lost its 'bounce'. The average house price for March 2007 is recorded at £177,083. Monthly appreciation was set at 0.4 per cent for March 2007, compared to 0.6 per cent in the previous month. Annual house price inflation slowed to 9.3 per cent in March 2007, from the February figure of 10.2 per cent.
• The Land Registry reported a 0.1 per cent increase in house prices in February 2007, and that the average house price in England and Wales was £177,099, an annual increase of 8.5 per cent. In February 2006 the rate of annual change in house prices averaged 3.6 per cent, less than half the 8.5 per cent in February 2007.
• Rightmove found more reasons to be cheerful for landlords, recording the largest monthly rise in house prices for five years in the period up to 7 April. Rightmove places national asking prices at £236,490 in April, with a 3.6 per cent monthly change, putting the average increase in asking prices between March and April 2007 at £8,307. Rightmove believes the seasonally buoyant market, the shortage of supply and eager estate agents to be the cause of the annual rate of increase shifting to 15 per cent.

Regional Trends

All regions in England experienced house price increases in the first quarter of 2007. In Scotland prices rose by 22.4 per cent.

Northern Ireland's house prices rose by 37.0 per cent. In England, the highest inflation rate was in London (14.9 percent). The lowest inflation rate was in the North (5.6 per cent) and the East Midlands (5.8 per cent). Prices in Scotland, Yorkshire and the Humber, on average, fall below the £150,000 mark in 2007, while in Northern Ireland the average house price this year is £206,495.

Rise in Demand for Rented Property

Tenant demand rose at the fastest pace in nine years, according to a RICS quarterly Lettings Survey published at the end of February.

The acceleration in demand occurred on the back of strengthening economic activity, buoyant employment conditions and sustained migration from EU accession countries.

30 per cent more Chartered Surveyors reported a rise than a fall in tenant lettings, up from 21 per cent in October 2006. This is the highest recorded rise in tenant demand since July 1998, when the figure was 41 per cent.

Demand rose for both flats and houses, with the latter experiencing the biggest rise with 34 per cent more Chartered Surveyors reporting a rise than a fall in demand for houses, up from 22 per cent in October - the highest figure in the survey's history. Rising household incomes are leading to increased rental demand for larger properties. High prices continue to prevent would-be buyers from purchasing a home.

New landlord instructions (an indicator of buy-to-let activity) showed a modest upturn. For the quarter to January, 10 per cent more Chartered Surveyors reported a rise in landlord instructions compared to 6 per cent in the previous quarter.

Higher investor activity reflects the pull of strongly rising house prices with interest rate rises yet to have a negative impact on landlord demand.

Gross yields showed a second consecutive quarter of decline, with the pace of decline accelerating to the largest since July 2004. The fall reflects equal declines for both houses and flats across all locations.

Surveyors reported a firm increase in rental levels but expectations of further growth were less than optimistic with a backlog of properties expected to prevent further increases.

"The buy-to-let-market remains healthy with interest rate rises yet to bite, but there are few signs that the market is booming. Further interest rate rises will squeeze the position of would-be landlords, slowing investment as profit margins diminish," said RICS spokesperson Jeremy Leaf.

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