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House prices rise 1.1 per cent in July says Halifax

Wednesday, 5 August 2009 12:03 PM

House prices rose by 1.1 per cent in July, according to the latest figures from the Halifax, almost wiping out losses for the first half of 2009.

The Halifax House Price Index almost exactly mirrors that of Nationwide's own house price research published last week but adds to a confusing overall picture.

Halifax says the price of the average house in the UK is now £159,623 compared to £160,861 in December 2008.

The bank's figures also suggest property prices may be stabilising given house prices for the first six months of the year fell less than 1 per cent overall. House prices acccording to the bank fell by 0.8 per cent in the first six months of the year, leaving a net gain of 0.3 per cent from July's rise.

While property prices in July remained 12.1 per cent lower than in the same month last year the rate of decline has eased from a high of 17.7 per cent in April the lender added. The annual rate of change is measured by comparing the average for the latest three months against the same period a year earlier

But in what is perhaps the most encouraging sign that the property market might be stabilising Halifax's research claims the house price earnings ratio - whereby house prices are viewed in the context of how many times higher they are than average wages - has fallen.

It now estimates average house prices to be around 4.36 times average earnings. This is down from a peak of 5.84 times average earnings in July 2007.

Historically house prices significantly higher than 4 times average earnings have resulted in a crash in property prices because of a lack of overall economic sustainability. This has been the case in every previous property crash in the post war period.

Martin Ellis, housing economist at the Halifax, said: "Demand for homes has risen, albeit from a very low base, since the start of the year, driven by improvements in affordability and low interest rates. Higher demand has combined with the low levels of property available for sale to boost sales activity from exceptionally low levels and support prices over the past few months."

Michael O'Flynn, director of property search website FindaProperty.com, welcomed the news of an increase in property prices, adding: "The Halifax data brings more good news for the housing market, with consistent reports of rising prices across the board. Supply has fallen in many areas and buyers are returning to the market with renewed confidence. There is huge pent up demand from people who have held off from moving over the last 18 months, which will present a real opportunity for sellers as the busy autumn period approaches."

However, while Nationwide's house price index last week also showed prices had risen in July the lender remained cautious about the prospects for recovery warning falling construction could mean a "shortfall in supply" in the longer term.

And despite the apparent positive results, housing market professionals remain pessimistic of a sustained recovery.

Andrew Montlake, director at independent mortgage broker Coreco, said: "Sorry to be the party pooper, but while today's figures are positive news, it is still extremely difficult to arrange mortgage finance for the majority of prospective buyers.

"Unless you have a sizeable deposit, a good salary, a safe job and a faultless credit history, you'll struggle to be accepted for a loan."

Mortgage product availability is still one of the greatest constraints on housing market activity with the supply of mortgage products having shrunk to levels not seen since the early 1990s. On the whole banks remain reluctant to lend and are likely to remain so for some time.

Yesterday's announcement by Northern Rock of £724m worth of losses for the first six months of 2009, the vast majority of which were due to mortgage customers defaulting on loans, is unlikely to encourage mortgage lending. Neither will the news this morning from Lloyd's TSB, which posted £4bn worth of losses for the first half of the year due to mortgage related bad debts at HBOS, the parent company of Halifax.

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