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House prices: Signs of recovery?

Could house prices be rising again after a serious and prolonged slump? The latest report from Nationwide says they are.

House prices rose by 1.2% during May as buyers continued to return to the market, figures have shown.

It is the second time in three months that house prices have risen, with the cost of property also increasing by 1% in March, while a fall of just 0.3% was recorded in April, according to Nationwide Building Society.

The latest jump pushed average prices up to £154,016, and caused the annual rate at which property values are falling to slow sharply from 15% to 11.3%.

The hike in prices comes as a new report has forecast the UK will be transformed by the emergence of 'supercities' - including London, Leeds and Liverpool - which will thrive as hubs of economic dynamism.

But Nationwide warned it was too early to call an end to the house price correction, adding that conditions in the market had improved during the past few months.

Martin Gahbauer, Nationwide's chief economist, said: "Although the short-term trend in house prices has clearly improved from where it was at the beginning of the year, it is still too early to say that the market is turning definitively.

"During the downturn of the early 1990s, there were many months during which prices rose, only to fall back down again in subsequent periods.

"In the current downturn, the combination of rapidly rising unemployment and tight access to credit implies that the last of the price declines has probably not been seen yet."

But he added that the improvement in house price trends suggested further price declines may occur at a less rapid pace than in 2008.

The quarter-on-quarter rate of change, which is generally seen as a less volatile indicator of price trends, improved from falls of 3% during the three months to the end of April, to ones of just 0.5% during the three months to the end of May - the lowest level since January last year.

Nationwide said the recent improvement in prices was likely to have been caused by a shortage of homes on the market, due to a combination of lower building levels and sellers either delaying putting their home on the market, or opting to rent it out instead.

At the same time, estate agents have been reporting an influx of potential buyers as historically low interest rates and recent house price falls tempt people back into the market.

Mr Gahbauer said: "If the supply of homes onto the market does increase, the recent moderation in the pace of house price falls may not be sustained.

"However, the ultimate outcome for prices depends as much on the development of demand as it does on supply dynamics."

He said if recent buyer interest translated into sales and this outweighed any potential increases in supply, the recent moderation in price falls may continue.

There has been a raft of positive data on the housing market in recent weeks, with both transaction levels and mortgage approvals for house purchase increasing.

But the Council of Mortgage Lenders reported a 9% fall in mortgage advances during April, prompting economists to warn that any recovery was likely to be gradual.

'Supercities' set to transform UK

The UK is heading for its biggest transformation since the industrial revolution with the birth of "supercities" and moves towards scientific innovation, a report said.

A map of the UK showing how the traditional landscape of factories, power stations and farms could be overlaid with areas devoted to robotics and wind farms has been drawn-up as part of the HSBC Future of Business report.

The report said five new "supercities" - Brighton, Leeds, Liverpool, London and Newcastle - would evolve over the next 20 years as the country increasingly focuses on new economic endeavours based on nanotechnology, cybernetics and other bio and technological sciences.

Dislocation between London and the rest of the country will intensify, according to the report, which predicts the capital will become a city-state.

The report said changes were being driven by the recession, which will push new ways of working, increased international business and entrepreneurship.

Newcastle is to become a science city, with the sector ranked top among Geordies for investment or to start a business in.

Leeds is predicted to establish itself as a financial hub, second to London, while Liverpool is expected to build on last year's European Capital of Culture status to become a global brand.

Report author, Martin Raymond of the Future Laboratory, said: "In the last decade, the notion of the 'culture capital' became a buzzword, as cities such as Cardiff, Newcastle, Gateshead, London and Liverpool worked with so-called 'starchitects' such as Norman Foster, Richard Rogers and Wilkinson Ayre to create business opportunities and global profiles.

"We are about to see innovation, technology and wireless connectivity being used in the same way, according to our panel of experts."

Gaming is to become a Scottish speciality as the country builds on its creative and media industries - the report notes that the Lemmings and the Grand Theft Auto franchises were developed by Scottish studios.

Meanwhile robotics technologies are forecast to be a key sector in areas including Edinburgh, Birmingham and Plymouth.

Renewable energies will be a feature of the South and West, with London, Wales, Cornwall and Glasgow all set to specialise.

Mr Raymond added: "These supercities and regions will derive their status, income and prestige from new economic income streams such as biotech, stem cell research, innovation, gaming and even alternative work practices and business models."

The report was based on input from 18 industry experts and data from 500 entrepreneurs and decision makers in 17 UK cities.

Lending down but home buyers return

Mortgage lending slumped to an eight-year low during April but there have been further signs that activity in the housing market has stabilised.

Net lending by the major banks totalled just £2.7 billion during the month, the lowest figure since March 2001, the British Bankers' Association said.

But the number of mortgages approved for house purchase increased to the second highest figure in just over a year as buyers returned to the market.

A total of 27,685 mortgages were approved for people buying a new property during the month, 4% more than in March, and only 16% lower than a year earlier, building on evidence that house purchase activity has now passed its trough.

But the average value of these mortgages has dived from £155,100 in April last year to £129,100 last month, reflecting the steep house price falls seen during the past year.

The number of people remortgaging to a better deal fell for the fourth month in a row during April to hit a near 10-year low.

Only 25,418 remortgage loans were approved during the month, as historically low interest rates mean many homeowners are better off staying on their lender's standard variable deal when their existing mortgage comes to an end, rather than switching to a new mortgage.

There was also a further decline in mortgage approvals for equity release and buy-to-let properties.

The steep decline in remortgage activity is dragging down the total lending figures, with the value of all mortgages approved falling slightly to £7.2 billion during the month, despite the value of approvals for house purchase rising.

David Dooks, British Bankers' Association (BBA) director of statistics, said: "The house purchase part of the mortgage market appears to have stabilised, with slightly more approvals coming through, although April's weak net mortgage lending reflects the lower number of approvals in previous months.

"Households' uncertain financial circumstances not surprisingly continue to dictate consumer behaviour, both in the housing market and in generating only low demand for new personal loans."

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The very modest rise in mortgage approvals in April reported by the BBA adds to the overall evidence that housing market activity has very likely passed its worst point helped by the substantial fall in house prices from their 2007 peak levels and markedly reduced mortgage rates.

"But it is still very weak compared to long-term norms. Furthermore, the BBA data reinforce our belief that the pick-up in housing market activity will be gradual and fitful for some time to come, given ongoing very poor economic fundamentals and still tight credit conditions."

Credit card debt edged up by £178 million during the month, as repayments continued to match new spending.

Lending through loans and overdrafts fell by £59 million in April, meaning people repaid £59 million more than they borrowed.

The BBA said demand for personal loans remains very weak compared with a year ago, as consumers tighten their belts in the face of the current economic uncertainty.

Savings levels rose for the third month in a row, increasing by £1.8 billion, more than double the previous month's £700 million rise.

But the group said the overall trend for saving in bank accounts continued to decline.

Shadow chief secretary to the treasury Philip Hammond, said: "Although there are some welcome signs that the housing market may be stabilising, these figures show that, for thousands of families and businesses, the credit crunch remains a reality."

Negotiating the mortgage data maze

As a nation of homeowners - with hopes, dreams and incomes inextricably linked to property - it is little wonder that the British public is extremely interested in the health of the housing market.

But while a panoply of surveys are released every month, the sometimes conflicting information can be baffling for prospective buyers and sellers.

Ray Boulger, of mortgage broker John Charcol, said: "There are about half a dozen different surveys that come out at different times of the month, all measuring different things.

"If you don't understand what they're measuring it is easy to get confused."

Here is a guide to some of the surveys, how they get their information and what you can conclude from it.

THE MORTGAGE PROVIDERS

Chief among the well-known surveys are the monthly reports from Nationwide and Halifax - two of the country's biggest mortgage providers.

Both organisations compile their data from their own lending approvals, meaning that they are able to put them together very quickly.

These surveys are seen as an important guide to the state of the market as they provide information on very recent agreements - rather than using completion data, which can reflect deals from several months previously.

They also give details of approvals across the whole of the UK.

But as the figures are based only on mortgage approvals, they miss out cash purchases, which are thought to make up around a third of transactions.

Both lenders seasonally adjust their figures which can alter the data on a monthly basis, but which should even out across the year.

The latest Nationwide survey has suggested another slight climb for beleaguered property prices in May.

It recorded a 1.2% rise in the month - pushing average property prices up to £154,016 - following a fall of 0.3% in April and an increase of 1% in March.

The annual rate at which property prices are falling slowed as a result of the new figures, from 15% to 11.3%.

Last month Halifax said the average UK home lost 1.7% of its value during April, pushing prices down to £154,716 and leaving the annual rate of decline at 17.7%.

LAND REGISTRY

The Land Registry's House Price Index (HPI) is thought to be the most reliable of all the surveys as it uses actual sales data and total sums paid for properties in England and Wales.

It records so-called repeat sales regression - the differing amounts paid for the same house when it is resold. Of the 15 million transactions recorded since January 1995, 5 million properties have been identified as repeat sales.

The figures are not seasonally adjusted and tend to be the latest out of all the surveys as they are based on completions.

The most recent HPI for March showed house prices fell 0.4%, the lowest monthly drop for 11 months. Meanwhile, the annual rate of decline eased from a record 16.6% to 16.2%.

The latest monthly Land Registry figures - which will cover April residential property transactions - are due to be released next week.

GOVERNMENT

The Government produces its own house price guide through the Department for Communities and Local Government (DCLG) based on information from about 60 mortgage lenders.

This survey produces information about two months in arrears and uses completion data, unlike the Nationwide and Halifax.

Because it uses information from lenders, it does not include cash sales.

The most recent data from the DCLG survey showed house prices fell 13.6% year on year in March, but the decline in the average cost of a UK property between February and March eased to 1.3% from a 2.7% dive seen the previous month.

RIGHTMOVE

The Rightmove property website produces what are considered to be the fastest indicator on the block when it comes to checking the pulse of the housing market.

Its survey covers average asking prices in England and Wales and therefore gives a first idea of sellers' expectations and confidence.

Mr Boulger said these figures are the most up to date of all the surveys, but are also the most unreliable as they do not reflect what happens further into the selling process.

The latest Rightmove survey showed average asking prices increased by 2.4%, or £5,000, during the four weeks to May 9, to stand at £227,441.

It was the fourth month in a row that the figures had registered a rise and the group said sellers may be pricing their homes at higher levels due to concerns about the extent to which their equity has been eroded, making it difficult for them to trade up the property ladder.

RICS

Another measure of confidence - but this time not of prices - comes from the Royal Institution of Chartered Surveyors (RICS).

This gives an idea of estate agents' perception of the market and also registers the number of buyer inquiries.

The figures are considered to be a good indicator of what might happen to the property market two or three months down the line as they show the amount of interest from prospective purchasers.

Recent figures for April showed inquiries rose at their fastest pace in almost a decade in the month as surveyors expressed confidence that sales would continue to rise.

RICS said April's survey was the first since August 2006 showing surveyors were universally optimistic about transactions.

But the figures do not reflect prices and many believe that while sales may rise, it could take many months to see growth in values.

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