Index Monthly Change 1.1%
Annual Change 15.1%
Standardised Average Price (seasonally adjusted) £162,086
Key Points
* This was the smallest quarterly gain since 2000 Quarter 2, providing further evidence that house price inflation is slowing.
* House prices increased by 15.1% in 2004, but by only 2.8% in the second half, with the annual rise last year the smallest since 2001 when prices rose by 11.7%. (2002: 26.4% and 2003: 15.4%.)
* The three northern English regions recorded the biggest price rises in Britain in Quarter 4: North West (3.0%), Yorkshire and the Humber (1.2%) and the North (0.7%). All other regions in Britain saw a fall in prices during the quarter with the biggest declines in Wales (-6.2%) and the South East (-1.6%). Prices in London fell by 0.5%: the second successive quarterly drop in the capital.
* There was a clear north/south divide in 2004. The biggest annual house price rises were in the North West (27%), the North (26%), Northern Ireland (24%) and Yorkshire and the Humber (22%). The smallest annual price gains were in Greater London (4%) and the South East (7%).
* The differential between the average house price in the south1 and its equivalent in the north1 has fallen by £15,000 from a record £99,000 in early 2003 to £84,000 at the end of 2004.
* Scotland is now the only region of the UK where the average price remains below £100,000 (£99,056). London remains the most expensive region with an average price of £241,670.
* Housing market fundamentals remain sound — a strong labour market, historically low interest rates and a shortage of housing supply — which should curb the extent of the downturn in the housing market and result in only a 2% fall in house prices this year.
* The continuing signs of a genuine slowdown in the housing market are likely to reduce the pressures on the Bank of England to raise interest rates again. We believe that base rates have peaked at their current rate of 4.75% and that rates will end the year at 4.25%.
Commenting, Martin Ellis, Chief Economist, said:
"House prices rose by 1.1% in December following successive monthly declines in October and November. Overall, prices in the final quarter of 2004 were 0.1% higher than in the previous quarter. This was the smallest quarterly gain since 2000 Quarter 2 and the second successive easing in quarterly house price growth, providing further evidence that house price inflation is slowing.
House prices continued to rise in northern England during the fourth quarter. Whilst prices in this part of the country increased rapidly during 2004 as a whole, there was significant slowing in house price inflation in the second half of the year as first-time buyers increasingly faced similar difficulties to those in the south in buying a home. Southern England and the midlands experienced small falls in prices in the final quarter of 2004.
The significantly sharper house price rises in northern Britain in 2003 and 2004 compared with southern England have reduced the north/south house price divide. The differential between the average house price in the south1 and its equivalent in the north1 has fallen by £15,000 from a record £99,000 in early 2003 to £84,000 at the end of 2004.
Sound housing market fundamentals will continue to underpin the market in 2005, ensuring that the market remains healthy and that house prices fall only slightly. We expect a 2% decline in prices nationally this year with the market subsequently characterised by modest price increases and a steady improvement in transactions beyond 2005."
Smallest quarterly rise in prices since 2000 Quarter 2 …
The 0.1% increase in house prices nationally in the fourth quarter confirmed the continuing downward trend in house price inflation. This was the smallest quarterly rise in prices since 2000 Quarter 2 when prices fell by 0.1%.
Regionally, the three northern English regions recorded the biggest price rises in Britain in the fourth quarter: North West (3.0%), Yorkshire and the Humber (1.2%) and the North (0.7%).
All the other regions saw a fall in prices during the quarter with the biggest declines in Wales (-6.2%) and the South East (-1.6%). Prices in London fell by 0.5%: the second successive quarterly drop in the capital.
North/South divide in 2004 …
On an annual basis, there was a clear north/south divide in house price performance in 2004. The biggest rises were in the North West (27%), the North (26%), Northern Ireland (24%) and Yorkshire and the Humber (22%). The smallest price gains were in Greater London (4%) and the South East (7%): the only two regions to record single digit growth. This was the smallest annual rise in house prices in the capital since 1995.
Higher interest rates and affordability issues have curbed price growth and activity …
The five interest rate rises between November 2003 and August 2004, combined with the difficulties faced by potential first-time buyers getting on to the housing ladder, have curbed housing demand causing house price inflation to slow since mid 2004. There was a marked contrast in the housing market during 2004 with prices increasing by 11.9% in the first half of the year followed by a more modest 2.8% gain in the second half.
Indicators of activity confirm this trend. Bank of England figures show that the number of mortgages approved to fund house purchase fell by more than one-third between May and November 2004.
Despite this decline in activity, the latest RICS survey suggests that the level of buyer enquiries may be stabilising, indicating that the pace of decline in activity could even out over the coming months.
Housing market remains well underpinned by the fundamentals …
Housing market fundamentals remain sound — a strong labour market, historically low interest rates and a shortage of housing supply — which should curb the extent of the downturn in the housing market and result in only a slight fall in house prices this year. We expect a 2% decline in prices nationally this year followed by a market characterised by modest price increases and a steady improvement in transactions beyond 2005.
Base rates to end the year at 4.25% …
The continuing signs of a genuine slowdown in the housing market are likely to be a key factor contributing to the removal of pressures on the Bank of England to raise interest rates again. Accordingly, we believe that base rates have peaked at their current rate of 4.75% and that rates will end the year half a percentage point lower at 4.25%.
