Halifax reports that house prices fell by 0.3% in February, but prices in the three months to February were 0.2% higher than in the previous quarter. House prices in February were 4.2% higher than a year earlier. The average price of a home in the UK has increased by £4,390 over the past year to £196,649.
Halifax predicts that house prices will be flat during 2008 as a whole. Sound economic fundamentals are supporting house prices. The number of people in employment - a very important driver of housing demand - has risen by 296,000 over the past year to a record 29.40 million. Lower interest rates are also helping to support the economy and the housing market. We predict that the MPC will cut Bank Rate at least twice more in 2008.
Halifax research shows that residential stamp duty revenue has more than doubled over the past five years from £2.7bn in 2001/02 to £6.4bn in 2006/07. The amount raised at the higher stamp duty rates of 3% and 4% accounted for 79% of all residential stamp duty revenue in 2006/07 compared with 61% in 2001/02. In 2002 the number of properties in the UK valued above the £250,000 threshold was 1.8m; by 2007 this had increased by 201% to 5.5m.
The average home buyer in nearly one in three (29%) of local authorities (LAs) needs to set aside the equivalent of more than 20% of local average annual gross full-time earnings to pay the stamp duty bill associated with buying their new home. The average stamp duty bill was worth more than 20% of average full-time earnings in 91% of London LAs and 61% of LAs in the South East in 2007.
Commenting, Martin Ellis, chief economist, said: "House prices fell by 0.3% in February. Prices in the three months to February, however, were marginally (0.2%) higher than in the previous quarter. Over the past year, the average price of a home in the UK has increased by £4,390 to £196,649. Whilst the housing market has slowed over the past six months, it is supported by sound economic fundamentals. Interest rate cuts by the Bank of England are also helping to underpin house prices. Nationally, we predict that house prices will be flat in 2008."
The latest official figures confirm that the UK's gross domestic product (GDP) increased by 0.6% between 2007 Q3 and 2007 Q4. This is in line with the economy's long-term rate of growth, but slightly below the 0.7% increase in 2007 Q3. At a record 29.4 million, the number of people in employment increased by 175,000 between 2007 Q3 and 2007 Q4. Employment was 296,000 higher than a year earlier. Unemployment fell by 61,000 over the same period (Source: ONS).
There has been a significant decline in housing market activity over the past year. For example, completed property sales in January were down 16% on an annual basis (Source: RICS). The number of mortgage approvals to fund house purchase in January 2008 was 39% lower than a year earlier (Source: Bank of England). There was, however, a 3% rise in mortgage approvals between December and January, on a seasonally adjusted basis. That may indicate a possible stabilisation in activity, albeit at a much lower level than in recent years.
Halifax research shows that total stamp duty revenue from residential property sales rose by 40% (£1.8bn) in 2006/07 to a record £6.4bn. Over the past five years, annual residential stamp duty revenue has more than doubled with a 140% rise from £2.7bn in 2001/02 to £6.4bn in 2006/07. Estimates of residential stamp duty revenue for 2007/08, based on government projections in the latest Pre-Budget Report, are for a 14% rise to £7.3bn. Residential stamp duty revenue raised at the higher stamp duty bands accounted for 79% of all residential stamp duty revenue in 2006/07, at £5.1bn. Five years ago in 2001/02, the higher stamp duty bands contributed 61% of total residential stamp duty revenue. In 2002 the number of properties in the UK valued above the £250,000 threshold was 1.8m; by 2007 this had increased by 201% to 5.5m. Properties above the £500,000 threshold had increased by 337% to 1.0m. Halifax estimates that 26% of privately owned properties in the UK are now valued above the £250,000 stamp duty threshold compared to 9% in 2002; this includes 5% of properties that are valued above the £500,000 threshold, compared to 1% five years ago.
If the higher stamp duty thresholds were increased in line with house price inflation since July 1997 - when the £250,000 and £500,000 stamp duty thresholds were introduced their respective threshold would now stand at £720,000 and £1,440,000. If the lowest stamp duty threshold had been increased in line with house price inflation since March 1993, it would now stand at £191,000. This would be £66,000 above its current level of £125,000.
