Halifax House Price Index December 2008

Commenting, Martin Ellis, chief economist, said:

"There was a 2.2% decline in average UK house prices in December. Continuing pressures on incomes and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are expected to exert further downward pressure on the market over the coming months. 

But a number of factors will help to support demand and should help to limit the downturn. Improving housing affordability and an easing in the pressure on the majority of households' finances should support market activity and prices. The house price to earnings ratio – a key affordability measure - is at its lowest for five and a half years."

Housing demand is constrained by the pressures on householders' incomes and reduced mortgage availability

The combination of high house prices in relation to earnings, constraints on householders' incomes and spending power and the decline in the availability of mortgage finance since the summer of 2007 has curbed housing demand. Falling 'real' earnings and marked rises in fuel and food prices over the past 12 months have reduced the amount of discretionary income available to householders.  (Source: ONS)

Continuing pressures on incomes and the negative impact of the dislocation of the financial markets on the availability of mortgage finance are expected to exert further downward pressure on the housing market over the coming months.  The likely decline in UK economic activity and the associated rise in unemployment this year will add to these influences.

Falling inflation should provide a boost to households’ spending power over the coming year. The recent reductions in Bank Rate, together with the further cuts that are likely in early 2009, will lower regular monthly mortgage payments for the approximately 50% of all mortgage borrowers who have tracker and variable rate products.

Key housing affordability measure is at its most favourable for more than five and a half years

The house price to earnings ratio – a key affordability measure - is declining significantly.  The house price to average earnings ratio has fallen by 24% from a peak of 5.84 in July 2007 to an estimated 4.44 in December 2008. The ratio is now at its lowest level for more than five and a half years (April 2003: 4.44). The long-term average is 4.0.

First-time buyer home affordability improved significantly in 2008

The proportion of local authorities (LAs) where housing is affordable for a first-time buyer (FTB) more than trebled in 2008.  In 2008, the average price paid by a FTB was affordable for someone on average earnings in 14% of LAs across the UK compared to just 4% in 2007*. The number of LAs where the average property is affordable for a potential FTB on average earnings has increased from 18 in 2007 to 57 in 2008 out of a total of 406 surveyed.

Further signs that housing market activity may be stabilising

Data from the Bank of England show that the number of mortgages approved to finance house purchase was broadly unchanged for the fourth successive month in October at a seasonally adjusted 32,000.  The recent flattening off in approvals suggests that housing market activity may be stabilising, albeit at a low level.

Estate agents reported the first increase in newly agreed sales for 18 months in November and the first rise in new buyer enquiries since October 2006.  (Source: RICS).  The increase in buyer enquiries tentatively suggests that buyer interest may be returning as a result of the reduction in interest rates in recent months and the fall in house prices that has already taken place.

* A local authority (LA) is classified as affordable if the average house price for a FTB in the LA is lower than the price someone on average earnings in the area can pay based on the historical average house price to earnings ratio of 4.0

Most households are better placed than in the last economic downturn

The deterioration in the economic environment is likely to increase the pressure on household finances, but there are a number of factors that indicate that households in general are better placed to withstand the economic downturn than in the early 1990s:

1. The percentage of mortgagors reporting payment problems is around half the levels seen in the early 1990s.
2. Other indicators of households’ financial distress, such as mortgage arrears and repossessions, are at low levels compared with the early 1990s.
3. The proportion of household income devoted to servicing that debt is broadly similar to that in the early 1990s despite significantly higher levels of borrowing.

Source: Bank of England, Inflation Report November 2008 (p21)

The Halifax House Price Index is prepared from information that we believe is collated with care, but we do not make any statement as to its accuracy or completeness.  We reserve the right to vary our methodology and to edit or discontinue/withdraw this, or any other report.  Any use of this report for an individual's own or third party commercial purposes is done entirely at the risk of the person making such use and solely the responsibility of the person or persons making such reliance.  © Bank of Scotland plc all rights reserved 2008.

UKHouse Prices: Historical Data

All Houses, All Buyers (Seasonally Adjusted)