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Weaker house price growth should offer first-time buyers a better chance of getting a foot on the housing ladder.
The annual rate of house price growth cooled further in May to hit an average of £220,706, according to the latest figures from Halifax.
The UK’s largest mortgage lender reports that in the year to May house price inflation dropped to 3.3%, down from 3.8% in the year to April.
Looking at home prices on a quarterly basis, prices have declined by 0.2%. This was only the second quarterly fall since November 2012.
But the data from Halifax shows that house prices actually increased by 0.4% between April and May, which is in contrast to recent figures from Nationwide, which said that property prices had declined in March, April and May.
Reflecting on May’s Halifax House Price Index, Jonathan Hopper, managing director of Garrington Property Finders, said: “The drumbeat of a slowing market is getting steadily louder. But with the monthly price change still in positive territory in May, it’s an open question whether we’re seeing a stumble or a stagnation.”
Garrington has identified two factors behind the slowdown: The cooling effect unleashed by the snap election announcement by the Prime Minister Theresa May in April, which is likely to be temporary, along with the longer-term issue of falling real wages which are eroding buyer confidence and squeezing affordability.
He continued: “For too long the gap between house price growth and wage growth has been a gulf. This was unsustainable and it was inevitable that prices would ease, especially in the areas where they had been rising fastest.
“But nothing puts the brakes on the housing market more than the sense that prices may ease in future. Would-be buyers are quick to sit on their hands if they think waiting could save them money.”
Howard Archer, chief economic adviser to the EY ITEM Club, also expects to see property prices come under greater pressure.
He said: “The fundamentals for house buyers are likely to deteriorate further over the coming months with consumers’ purchasing power squeezed further by a combination of higher inflation and muted earnings growth.”
“It is also possible that the labour market could increasingly falter despite its current resilience.”
But despite the recent slowdown, the shortage of property on the market is widely expected to keep prices buoyant over the next few months.
The Halifax said housing supply remained very low, with the number of homes coming onto the market falling for 14 months in a row.
“The fact that the supply of new homes and existing properties available for sale remains low, combined with historically low mortgage rates and a high employment rate, is likely to support house price levels over the coming months,” said Martin Ellis, Halifax housing economist.
David Hollingworth of L&C Mortgages also believes that prices are likely to remain broadly stable, largely because political and economic uncertainty will restrict housing supply.
He commented: “The flattening in annual house price growth and slowing in transaction levels comes at a time of substantial uncertainty for potential homebuyers.
“Higher inflation and the resulting higher cost of living, combined with uncertainty around the outcome not only of the election, but also Brexit negotiations, are bound to see some buyers and sellers adopt a wait and see approach. However, that in turn limits supply of homes on the market and with ultra low mortgage rates widely available, prices are still likely to hold up.”
Without property prices spiralling out of control, Hollingworth believes that first-time buyers will have a better chance of getting a foot on the housing ladder. That may also be helped by the reduced level of activity in the buy-to-let market as landlords get to grips with higher stamp duty charges, a reduction in tax relief and tighter lending criteria.