House price growth at new low

The annual rate of house price growth fell to its lowest level for more than nine years in July, according to figures published today.

Nationwide building society said properties across the UK were worth 2.6% more than in July 2004, the smallest year-on-year increase since May 1996. This compares with a rate of 4.1% in June and more than 20% in July last year.

However prices did bounce back in July, rising 0.2% during the month and reversing the fall in June. The average house price across the UK now stands at £158,348.

Nationwide said housing market activity had improved slightly over the month, but the market remained significantly quieter than it was last summer.

The number of mortgages approved for house purchases has increased steadily since the beginning of the year. The society's latest figures are for May and show 96,000 approvals during the month, compared with 83,000 in January.

Early indications suggest there may be another small increase in June's figures, as estate agents report an increase in the number of buyers.

Nationwide's group economist, Fionnuala Earley, said consumer confidence was crucial to future growth in the housing market, and that the recent terrorist attacks on London may have a negative impact on prices.

"Until now confidence indicators have remained quite robust, probably due to the buoyant labour market," she said. "But sentiment can change quickly.

"While the first terrorist attacks were expected to have little impact, the second, and threats of further attacks, may upset confidence enough to cause consumers to stay at home.

"Higher levels of household debt seem to have made consumers more sensitive to weakening economic news. At this point in time we expect the path of house prices to continue to soften gently for some time."

However, she added: "But if confidence collapses, there could be sharper, and self-fulfilling, impacts across the board."

Commenting on Nationwide's figures, Howard Archer, chief UK economist at consultancy Global Insight, said: "Latest survey evidence on housing market activity has been somewhat mixed, but mortgage loans and approvals have seen modest seasonal improvement in recent months.

"The expected 25 basis point interest rate cut in August should provide limited support to housing market activity, as will likely additional interest rate reductions further out, while buyer affordability will benefit over the coming months from the fact that annual house price inflation has now fallen well below annual earnings growth.

"Even so, most affordability ratios remain stretched and will only improve gradually."

Nationwide has also analysed house prices in some of the most popular holiday destinations around the UK.

It found prices in Brighton were almost a third higher than the average for the south-east, with a average property worth £240,000. The Cotswold's - a favourite destination for antique hunters - had an average price of £220,000.

However, other popular holiday spots such as St David's in Wales and the Lake District have much cheaper properties, averaging £149,000 and £143,000 respectively.

The society said the high prices in some destinations was likely to be a reflection of them being in reasonable commutable distance from main cities, rather than the demand from buyers looking for holiday homes.