House prices increased by 0.3% in May, the smallest monthly gain this year and the third consecutive slowing in the monthly growth rate, according to the latest Halifax House Price Index.
The annual rate of house price growth nudged lower for the second successive month to 10.6% from a peak of 11.1% in March. Buyer interest in properties fell for the fifth consecutive month in April with the pace of decline increasing. Mortgage approvals to fund house purchase fell in April to their lowest level for 12 months and were 16% below the peak of 128,000 in November 2006 at 107,000.
Halifax believes that higher interest rates and the negative trend in real earnings growth are likely to cause house price inflation to moderate over the remainder of 2007. The four interest rate rises since August 2006 have affected housing affordability, raising the monthly costs of servicing a mortgage. There has also been a squeeze on real earnings growth in recent months with headline retail price inflation of 4.8% exceeding average earnings growth of 4.5% over the year to March 2007.
Commenting, Martin Ellis, Halifax chief economist, said: "House prices increased by 0.3% in May. This is the smallest increase so far this year and the third successive easing in the monthly growth rate. The recent slowing in monthly house price inflation, together with further evidence of moderation in housing market activity, suggests that the interest rate rises since last summer are having an impact on the market. Higher interest rates, the negative trend in real earnings growth and rising food prices are likely to bite increasingly on householders' finances over the coming months, curbing housing demand. House price inflation is expected to moderate as a result. The market, however, remains supported by solid economic foundations which, together with supply shortages, will continue to support prices."
