House building after the great depression revived the economy, tackled overcrowding and kept property prices stable for years
Eighty years ago, when Franklin D Roosevelt was waiting to move into the White House and the New Deal was still in the future, Britain was already recovering from the Great Depression. As the first country to come off the gold standard the UK had the advantage of being the first country to devalue, and that – together with the protective wall around the British empire – helped manufacturers to export.
Departure from the gold standard in September 1931 also let the national government run a cheap money policy. The bank rate was cut to 2%, which is where it remained for almost 20 years. The result was the building boom that gave us the 1930s semi.
The contrast with the tepid recovery from the deep recession of 2008-09 is marked. An entire US presidential term has come and gone for Barack Obama without Britain showing signs of meaningful recovery. Two years ago a cold snap in December was blamed for the contraction of the economy in the final three months of 2010, but the fall in national output proved more than a blip. Despite a depreciation of sterling comparable with that which followed departure from the gold standard, manufacturing output has not picked up. The bank rate has been 0.5% for the past four years yet house building last year was at its lowest since the 1920s.
This week’s GDP figures for the fourth quarter of 2012 are likely to show a continuation of the flatlining pattern of the past two years. Having set out with the honourable intention of rebalancing the UK’s lopsided economy away from consumer and public spending towards investment and exports, ministers are no longer bothered where the growth comes from provided there is some.
The Bank of England and the Treasury are excited about the signs from the funding for lending scheme, which provides cheap funds for banks only if they are prepared to lend more at lower rates to their customers. Mortgage lending is on the rise, albeit from low levels.
It’s hard not to think that the approach of the 1930s was a lot more sensible. Building houses, both before and after the second world war, helped not just tackle overcrowding and squalor but also ensured house prices stayed relatively stable until the early 1970s. Government policy today has the avowed intent of pushing up asset prices, which is good news for the haves but not so for the have nots.
It may take many years for this approach to work. Mortgages are still out of reach for first-time buyers unless they can find deposits of 15-20%. That takes some doing when the average cost of a home in the UK is £160,000-plus, and a lot more than that in London and the south-east. The squeeze on real incomes combined with job insecurity explains why housing transactions are half what they were before the 2007 crash.
Vince Cable, the business secretary, has been pressing cabinet colleagues to adopt the 1930s approach. He thinks house building is the way to get real demand into the economy quickly, and has championed the idea of government guarantees for housing associations. He said in a speech last year that there was a virtuous circle in the 1930s in which higher mortgage demand led to an increase in house building, which in turn led to lower prices and greater affordability, leading to still higher demand. “Houses built by the private sector rocketed from around 130,000 in 1931 to almost 300,000 in 1934 and it is estimated that house building contributed almost a third of all employment increases in this period.”
A report out on Monday from the Centre for Cities, a non-partisan research unit, picks up on Cable’s idea. It lists the 10 towns and cities – Oxford, London, Cambridge, Brighton, Bournemouth, Aldershot, Crawley, Reading, Bristol and Worthing – where funds aimed at kick-starting development could unlock economic growth immediately.
The aim, the report says, is to get construction moving on schemes that have planning permission but where development has stalled. Rather than a blanket approach to house building, it says the focus should be on parts of the country where economic growth is strong, demand for housing is high and affordability a significant factor. Property is expensive in all the cities named, with few vacant homes and a significant number of stalled sites.
By contrast, in other cities homes are much more affordable and there the vacancy rates are much higher. There are stalled developments in Burnley, Bradford, Blackpool, Hull, Dundee, Leeds, Liverpool, Bolton, Blackburn, Birkenhead and Hastings, but the Centre for Cities report suggests a better approach here would be to renovate than to build anew.
“For some cities, lack of housing prevents people accessing jobs or means they are stuck in cramped accommodation,” said Alexandra Jones, the centre’s chief executive. “In other cities, incentives to retrofit empty houses could improve quality of life. Both approaches, adapted to local needs, would generate the jobs and growth the UK needs.”
Though the government has introduced policies to get house building moving, the report says the response has been too small, provided perverse incentives for local authorities to build when they should concentrate on retrofitting, and has failed to concentrate on areas where affordability issues are most pressing.
There are deep, structural issues that make a comprehensive solution to Britain’s housing problems hard to achieve. One is the concentration of power in the banking sector and the concomitant loss of local building societies. A second is the concentration of power in the construction sector. In both cases, more competition would be helpful.
Then, of course, there is the tension between central and local government: should Whitehall set targets for house building (as the previous Labour government did) or should it allow local authorities to make their own decisions (albeit with a few sticks and carrots chucked in)?
In the short run, though, this is a question of money. If the government wants more houses renovated it could do so by abolishing VAT on home improvements. If it wants more houses built, it is going to have to scale up substantially programmes such as Get Britain Building, which has a target of just 16,000 new homes.
The budget will almost certainly mean more cash provided for guarantees but what would really make a difference would be a slug of capital spending channelled to local authorities to boost the nation’s housing stock. It could be ringfenced and time-limited.
Doing this, though, requires the government to accept that its economic and budget strategy is failing. It also means taking a big political risk as increasing the supply of homes means property prices will fall. That’s good news for young people and the less well-off trying to get on the housing ladder, but will be resisted by those already sitting pretty.
Eight out of the top ten towns for house price rises in Halifax’s annual roundup are in London and south-east England
It has the longest pleasure pier in the world, an expanding airport and is an hour away from London by train. Now Southend-on-Sea can also claim the highest rise in house prices during 2012 – of 14.8%.
The year-on-year increase in the Essex resort took the average selling price to £198,418, according to a roundup of the year by Halifax, the country’s biggest mortgage lender.
The top five towns for house price rises in 2012 are in southeast England and only two in the top 10 – Lowestoft in East Anglia and the university city of Durham in the north – are outside London and the southeast.
With house prices generally having barely moved during 2012, Martin Ellis, housing economist at Halifax, is expecting little change in 2013. “We expect continuing broad stability in house prices nationally in 2013,” he said.
Again, prices are expected to be strongest in London and the southeast where the economy has been most buoyant.
“The generalised north-south divide in house price performance seen during 2012 is likely to continue next year,” Ellis said.
His remarks follow a survey by Hometrack, the property analytics business, which showed prices rising in most districts across London and much of the southwest while house prices in the north and Midlands fell during 2012.
Halifax said the biggest falls were recorded in Craigavon in Northern Ireland and Wishaw in Scotland, where prices fell 18.4% and 12.5% respectively.
“Several towns within easy commuting distance of the capital feature in the list of top performers while the majority of towns that have fared worst in house price terms are outside southern England, where economic conditions have generally been less favourable,” Ellis said.
Southend is “particularly less expensive” than London, Halifax said, and also offers the attractions of living by the sea.
Basingstoke is only just behind Southend in the top 10, with price rises of 14.7%, while the average house costs £220,000 in the Hampshire town. Of the top 10 climbers, St Albans had the highest house prices with an average of £371,131 after a 13% rise during the year.
The 18.4% fall in prices in Craigavon took the cost of an average house to £91,520. Only one town – Grays, also in Essex – in the top 10 biggest falls is in the southeast. All the others are in Scotland or the north and northwest of England.
Halifax based its review on changes in the 12 months to November.
Building tycoon whose keenly priced homes sprang up all over the UK in the 70s and 80s
Sir Lawrie Barratt, who has died aged 85, built so many houses that, for good or ill, Barratt Homes became synonymous with the modern estates that sprang up across the country – and the countryside – to meet the demand for home ownership in the 1970s and 80s. To many he was the patron saint of the first-time buyer, studying the market, trimming the size of his dwellings to fit their finances, and introducing special prices, package deals and part-exchange to enable people to buy their homes. He was Margaret Thatcher’s favourite builder. She bought an upmarket version from him in Dulwich, though never lived in it.
To others he epitomised the charmless architect-free rash of uninspired and cramped brick boxes spreading across the countryside, at its extreme described by the Labour MP Willie Hamilton as “tomorrow’s slums”.
Barratt was both symbol and beneficiary of the move to home ownership that saw owner-occupation rise from a quarter of the population when he started in 1953 to close to two-thirds when he retired, and the number of houses double. He built his first house in 1953 at the age of 25, working on it himself with the help of skilled tradesmen. Born in Newcastle upon Tyne, the son of a power station engineer, he left school at 14 and worked as a clerk first for a mining company and then a law firm while studying accountancy at night school. Unable to afford the four-bedroomed house he wanted, he decided to design and build it himself. It cost £1,750 and was valued at £3,000.
He drew the conclusion and swiftly built two more nearby for sale. Then, in 1958, he linked up with a small local builder, Lewis Greensitt, to form a housebuilding company, which in 1963 became Barratt Developments. Greensitt left after the company was floated on the Stock Exchange in 1968.
Barratt was hands-on. He designed the houses, bought the land and dealt with the tradesmen. In later years he had helipads constructed at his major sites so he could check on progress. “No one in a subsidiary comes to see me,”he remarked, “I go to their patch.” But above all he was a great salesman, with the mantra: “You have got to work backwards from the market.”
Personally a rather dour man, he studied demographics intently and shaped his estates and his prices to match incomes and preferences. As the divorce rate increased, he noted that divorce sold houses. When inflation took off in the 1970s, he reduced the size of his houses to put them within reach. “First-time buyers could no longer afford to buy three-bedroom semis so we moved a lot of our production to two-bedroom, and then, when it got worse, to one-bedroom.”
He made things simple for buyers with show houses, starter homes and financial packages. “They had to find a solicitor, find a mortgage and all the hire purchase for white goods. We translated all that into virtually one-stop shopping.”
Quick to see the benefits of national television advertising, Barratt Homes’ famous slots in the 70s featured the actor Patrick Allen flying over rows of Barratt Houses and then alighting from Barratt’s helicopter.
Retaining a base in the north-east, Barratt expanded into other parts of northern England and Scotland and then the south of England, making key acquisitions in Manchester and Luton. His business benefited from the latitude he allowed his local managers within an agreed framework, setting up a network of semi-autonomous subsidiaries that could react to local conditions.
He reached his apogee in 1983, building a record 16,500 houses, more than his principal rival, George Wimpey. He was knighted in 1982, the year he took a venture into inner-city development, buying and refurbishing 300 rundown council flats in Toxteth, Liverpool, the scene of riots the year before. But in the mid-80s business was badly hit by two World in Action programmes on ITV that questioned the quality of estate-built houses, and in particular that of timber-frame construction.
Barratt managed to steady the business but abandoned timber framing. By the time he retired in 1988, the company was making £61m a year, although with only 7,000 houses sold it had slipped to number three. By 1991 the company was in trouble following the end of the 80s boom and reductions in mortgage relief. Losses were estimated at £100m. Fewer than 5,000 houses were sold.
Barratt agreed to come back, announcing that he would work for nothing until he improved the business: “No profit, no pay.” Subsidiaries in the US were closed, a fifth of the staff laid off, and by the end of the year it was making a small profit.
Barratt remarked: “We are happier working in a recession. In boom times discipline disappears out of the window. Excess land costs and high building costs do no one any good at all.” When he retired for good in 1997 he had built more than 200,000 houses.
He remained a prominent figure in the north-east, living at Corbridge in Northumberland, playing golf locally, but also maintaining a 4,500-acre estate in North Yorkshire for shooting. However, his health deteriorated and he never completely recovered from an armed robbery at his home in January 2011, during which he and his wife were bound and gagged.
His first marriage ended in divorce. He is survived by his second wife, Sheila Brierley, whom he married in 1984, and by two sons from his first marriage.
• Lawrence Arthur Barratt, businessman, born 14 November 1927; died 18 December 2012
Northern Ireland, Wales and the north record highest vacancy rates as retailers call for business rate freeze in 2013
More than one in 10 shops in the UK’s town centres were empty in October as retailers suffered from stagnating sales and rising costs, and the outlook is likely to get worse, according to the British Retail Consortium.
Its latest survey showed a national vacancy rate in high streets and shopping centres of 11.3%, up 0.4 percentage points on the previous month and the highest since the BRC and information group Springboard began compiling data in July 2011. Northern Ireland, Wales and the north recorded the highest vacancy rates.
A number of businesses have cut back after running into trouble, including JJB Sports, Clinton Cards, Blacks Leisure, Game and Peacocks. Comet, the latest big-name retailer to go into administration, will add to that tally after it warned at the weekend that 41 of the chain’s 236 outlets were likely to be shut by the end of November, putting around 800 jobs at risk. Last week official figures showed a worse than expected drop in sales of 0.8% in October.
Stephen Robertson, the BRC’s director general, said: “This new high in empty shop numbers really sets alarm bells ringing. It confirms the financial challenges for both customers and retailers are far from over. Next year’s threatened business rates increase [of 2.6% in April] can only make matters worse.
“If the government wants to breathe life back into our town centres and ensure the retail industry can play its full role in job creation, it needs to freeze rates in 2013.”
In the shorter term, the runup to Christmas is likely to see a number of temporary shops opened, which could have a positive effect on the vacancy figures. Landlords may also become more flexible in an attempt to fill empty shops in their centres.
John Lewis for one is already benefiting from the forthcoming festive season. Its department stores saw a 7.6% year-on-year rise in sales last week to £91.7m. Parents were already snapping up toys such as the Furby – a revival of the 1990s craze – while tablets help lift electrical and home technology sales by 22%. Online sales continued to boom, up 31% compared with the same time last year.
Elsewhere, a survey by Rightmove showed that house sellers dropped their asking prices by 2.6% in November. But this was the least severe fall in November for three years, while prices rose 2% year on year. Excluding London, prices rose just 0.2% year on year. Rightmove said positive signs in the market included an 11% increase in inquiries on the same time last year, while mortgage approvals had climbed 9.2% in the most recent quarter.
David Miles, a member of the Bank of England’s monetary policy committee, said the bank still had the firepower to boost a sluggish economy. He told Sky News on Sunday: “There is the scope for more quantitative easing … it remains a powerful weapon.”
Miles said he expected that the positive effects of the bank’s actions would become evident. He is a strong supporter of QE, and the bank will reveal the reasons for not immediately increasing the asset purchase programme when its latest minutes are released on Wednesday.
Halifax data shows typical UK mortgage costs buyer 26% of take-home pay, compared with 48% at peak levels in 2007
The cost of buying a home has fallen to its lowest level in 15 years, according to the Halifax banking chain, as separate data showed further downward pressure on house prices.
A typical mortgage on a new property now costs the average buyer 26% of their take-home pay, said Halifax, compared with 48% at their peak in late 2007 before the credit crunch struck.
Price falls and lower interest rates have pushed affordability in parts of the country to their best levels in a generation. In several towns in Scotland, buyers now have to part with 15% of their disposable income to afford a new home, although the improvement in affordability has been greatest in Northern Ireland, where house prices have tumbled most in the UK. In London and south-east England, the average new homebuyer has to part with 32% to 35% of their income to finance a mortgage, compared with 56% in 2007.
Overall, mortgage payments have nearly halved as a proportion of income over the past five years, said Halifax. The research, based on an analysis of local incomes and prices in 383 local authority districts, may give hope to struggling first-time buyers, but the mortgage famine continues. Last week the British Bankers’ Association revealed that net mortgage lending in July was 17% lower than a year ago, while just a few days later Santander increased its standard variable rate from 4.24% to 4.74%.
Ashley Brown, director of mortgage broker Moneysprite, said: “Whatever chinks of light the property market may be showing, the outlook for the mortgage sector is unremittingly dark. Most lenders are simply not interested in borrowers with anything less than a substantial deposit.” House prices fell by 0.1% in August, according to figures published by Hometrack, which said the property market remained”fragile”. In London, which has defied falls elsewhere in the country, prices were unchanged, the first time this year that prices have not increased in the capital.
Thin volumes and a sluggish market will help push house prices down for the rest of the year, said Hometrack. “As the supply/demand balance weakens, we expect to see slow downward pressure on prices over the remainder of 2012,” it said.
On average, homes lie on the market for about 9.5 weeks before finding a buyer said Hometrack, although across the north the figure was three months, a return to the highs of March 2011.
But Martin Ellis, housing economist at Halifax, said: “The relatively low level of mortgage payments in relation to income is providing support for house prices. The prospect of interest rates remaining at low levels for sometime yet is expected to continue to be a key factor supporting the demand for homes, helping to keep house prices around their current level during the remainder of 2012.”
The Halifax research named east Ayrshire in Scotland, which includes Kilmarnock and Cumnock, as the cheapest area in the country for buying a home, where the typical mortgage will cost 15% of local income. At the other end of the scale, Kensington & Chelsea remains the least affordable, where buying the average property will cost 77% of the typical local take-home pay. Outside of London, Oxford and Guildford were the next least affordable locations.
Freeing up 1% of the green belt could provide 300,000 homes. Time to lose our myopic nostalgia and send in the bulldozers
Another day, another housing report. This time it is Policy Exchange, the prime minister’s favourite thinktank, urging the sale of social housing in more expensive areas and the reinvestment of funds to build more homes. The idea makes sense economically – but living next door to one such house, I would not like to see further stratification of our society. It would not help the country’s cohesion.
As so often with housing, this is sticking plaster politics – dealing with symptoms rather than cause. Be under no illusion as to the scale of the crisis: there are said to be 5 million people waiting on registers, but well under half the number of new homes we need being built. This is ruining life for countless families, squashed into inadequate properties, and paralysing possibilities for a generation in their 20s. It will get worse: last month’s census figures revealed not just a growing population but a baby boom.
This shortfall is why another report last week found average house prices nearly doubling over the last decade and rising three times faster than salaries. They are now approaching eight times average earnings – twice the multiple on which mortgage companies offer. This is not is just a London problem: the 10 places where the affordability gap increased fastest include Basildon, Burnley, Calderdale and Corby.
Little wonder – as Nick Clegg admitted in one of the general election debates – the cost and availability of housing is the issue raised most when politicians leave their ivory towers. Yet the slightest hint of changes to planning legislation sends parliamentarians into panic. This weekend we saw Tory MPs warning they would oppose moves to unpick the planning deadlock, while conservative and liberal newspapers alike, so vocal demanding bold action to revive the economy, prepare fresh campaigns to fight reform.
Despite mostly living in urban areas, Britons adore the bucolic vision of their green and pleasant land, as displayed to the world in Danny Boyle’s Olympic opening. Many foreign visitors commented on the lovely touch of wildflower meadows by the stadiums. But while surveys show most voters think more than two-thirds of their country’s surface area has been concreted over, an idea promoted by campaigning green groups, less than one-tenth of England is in urban development and almost half this is gardens and parks.
If we want to resuscitate the moribund economy, we must recognise the impact of our anachronistic planning laws. It is not just that they drive up house prices to unaffordable levels. They reduce quality, with too many flats and smaller properties rather than the family homes most in demand, while shortages of supply increase price volatility, drive up business costs and reduce employment. One study in Reading found the net cost of constraint was 4p in every pound of income for local families.
The coalition tried to tackle this during its initial “Maoist” phase, running into a predictable firestorm of protest led by the country’s most powerful – and most comfortably middle-class – pressure groups. Despite this, ministers cut some red tape and forced through new rules that presume in favour of sustainable development. Now they plan another assault to spur growth, seeking to encourage building on thousands of already-approved sites and drive through more development.
Unfortunately, much like the need to close hospitals to create more community health services for our ageing society, this is one of those issues where everyone wants action but no one is prepared to confront myopic nostalgia. Political constraints mean ministers must nibble around the edges of planning reform when we need perhaps 5m new homes over the next two decades. This leads to mistakes. One reform under discussion is to lift impositions of community benefits on developers; instead, these should be increased to overcome objections from Nimbys while improving services for the old, disabled and poor.
There is a very obvious solution staring us in the face. Nearly half of England’s land is protected. This includes wonderful national parks and important sites of special scientific interest. But the majority is green belt, that sanctified stuff of suburban dreams. It is time to start building on this misnamed land that is constricting our economic – and often environmental – needs.
Established after the war, the bands of green belt restrict supplies of land in cities, forcing developers to push beyond them into the countryside and commuters to travel further to workplaces. Created to prevent urban expansion, they are often far removed from our arcadian visions. Some 60% are given over to intensive farming, the rest encompassing gravel pits, quarries, railway embankments and even parts of Heathrow airport. Meanwhile, playing fields are sold to developers and, as Policy Exchange revealed, London alone lost the equivalent of 22 Hyde Parks in front gardens – often far more biodiverse than pesticide-laden industrial farms.
The best brownfield sites have been built on; many of the rest are exorbitantly expensive or ill-suited to development beyond squeezing in more flats. The four towns with the fastest-growing affordability gap between earnings and prices – Oxford, Cambridge, London and Bournemouth – all have one thing in common: green belt. Freeing up just 1% of green belt could provide space for 300,000 new homes. Instead, outdated planning policies penalise the most successful and productive parts of the country. Do we want to lose more playing fields, see more garden-grabbing, cram more families into the wrong properties, dash more young people’s dreams and watch more landlords get rich at our expense from soaring housing benefit? If not, it is time to send the bulldozers into the green belt.
With people unable to afford to buy and renting becoming ever more expensive, this national housing shortage is catastrophic market failure
Why aren’t we building more houses? The latest official figures reveal a worrying decline in the construction industry, with just 21,540 new home building starts in England in the second quarter of 2012. We are now building the lowest number of houses in nearly a century, running at less than a third of the level to meet demand, according to the Royal Institution of Chartered Surveyors. “Something bold is desperately needed,” it says.
What we are seeing is catastrophic market failure. The population of England and Wales is rising rapidly, up by 3.7 million in the past decade alone according to the latest census figures, the biggest rise since national records began in 1801.
Rents are rising inexorably. Figures from one of the UK’s biggest lettings agents showed private rents up again in July to an average of £725 a month, and the pace of rent inflation is picking up. Meanwhile, house prices, while flat in many parts of the country, remain at extraordinarily elevated levels. Groups such as the Walthamstow co-op we feature here have had to go to extreme lengths to create an affordable living space.
Evidently, demand is there, but the supply is not forthcoming. The obvious reason is finance. Prospective buyers, especially the young, cannot get mortgages without stumping up huge deposits, and few can do so. Various initiatives by the government, such as the New Homes Bonus, are clearly having no impact. Every round of “quantitative easing” (printing money) goes into the vaults of the cash-strapped banks rather than into financing new housing development.
Neither is it just about the green belt rules, though they must be relaxed. In my urbanised patch of south-east London sizeable sites have lain empty for years while property prices have escalated by 25%. When the shortage of housing is so intense, when construction workers are losing their jobs, and when the price you can sell the product is so high, it beggars belief that development is not taking place.
One solution, barely tried yet in the UK, is build-to-let. Regular readers will know of my concerns over buy-to-let, largely a zero-sum game where landlords have displaced young buyers and pushed up prices. Build-to-let is different, about increasing supply, which should cap rents and soften house price increases.
This week I met one company, Hearthstone, which aims to raise £500m to invest in residential property, much of it new-build for letting. Aviva is rumoured to be putting together a £1bn fund to invest in new-build for let. If so, it will take us back to when insurance companies, not banks, were the major financiers and developers of private housing.
In the 1930s a housebuilding boom led Britain out of the slump. We’ve shown with the Olympics that we can build magnificent facilities on time. Can we now do that with housing?
• Our condolences to the family of Robin Stoddart, who for many years was a regular contributor to Jobs & Money. He died on 3 August aged 77. A service of thanksgiving will be held at St Dunstan’s church, Monks Risborough, at 2pm on Tuesday, 28 August.
Monthly snapshot of the property market finds house prices falling in all regions of the UK outside London
The weakest level of property sales in four years is pushing down house prices in all regions of the UK outside London, says the body representing estate agents.
The monthly snapshot of the property market from the Royal Institution of Chartered Surveyors found that home transactions in July dropped for a fourth month and the balance of surveyors reporting falling prices was at its highest level for a year.
RICS said its members expected prices to continue edging downwards over the coming months even though they are hopeful that the number of sales will increase in the second half of 2012.
Asked about the trend in prices over the past month, a balance of -24 percentage points of agents said they were falling. The figure in June was -22 points.
RICS found that most surveyors reporting price falls said they were down by less than 2%, but said there was a distinct north-south divide with London prices rising and downward pressure weakest in the south-east.
Peter Bolton King, RICS’s global residential director, said: “Despite the terrible weather seen in many parts of the county last month, a steady number of potential buyers still got out there to test the market. However, this didn’t result in a higher level of actual transactions. Fewer sellers are putting their homes up for sale and the ongoing problem of accessing affordable finance is not helping. If vendors want to sell their homes quickly, they will have to be realistic in their price expectations.”
House price rises in London at odds with falls in rest of the UK, amid predictions that values will continue to falter
Rising house prices in London continued to drive the annual rate of property inflation in June, with the capital recording a 6.5% increase over 12 months, latest official figures show.
Across the UK the annual rate of price growth was 2.3%, unchanged from the 12 months to May, according to the Office for National Statistics (ONS). Over the month, prices rose by 0.5% to an average of £231,000.
However, the headline growth masks falls in much of the UK. Growth of 2.8% in England was offset by declines of 1% in Scotland and 11.9% in Northern Ireland. In Wales, prices were back at their June 2011 level.
According to the ONS index, the average price of a property in London is now £392,000 – more than £100,000 higher than the rest of the south-east and three times the average price in Northern Ireland. The average price paid by first-time buyers was up by 3.1% over the year, at £173,000, while movers paid an average of £266,00 – 2.1% more than in June 2011.
The figures, which are based on mortgage completions data from the Council of Mortgage Lenders, come as research by property website Zoopla suggests sellers and estate agents are still being unrealistic about the prices they can fetch for properties.
Zoopla found 37% of the homes listed on its site had been reduced in price at least once since going on the market, with the average price cut coming in at £19,000.
The biggest discounts were found in Newcastle upon Tyne where sellers have knocked an average of 9.6% (£18,888) off their original asking prices, and in Liverpool where the average reduction is 9.1% (£13,643).
Wakefield tops the list of places with the highest proportion of price-reduced properties on the market (51%), followed by Rotherham (45.6%) and Barnsley (44.7%).
Nigel Lewis of Zoopla said activity had been knocked by the weather and the extended jubilee bank holiday. “Once the distractions of summer holidays and the Olympics are gone, buyers will once again be able to focus attention on their property search and this should bolster confidence among sellers,” he said.
However, Howard Archer, chief UK economist at IHS Global Insight, said he believed prices were still set to fall further. Archer pointed out that the ONS figures lagged those of Nationwide and Halifax, which are based on prices at the point a property is valued, rather than on completion, and both showed falls in July.
“Housing market activity is persistently low compared with long-term norms, and while it may eventually be lifted by more mortgages being granted at decent interest rates under the Funding for Lending scheme launched by the Bank of England, this is unlikely to be a major factor in the near term at least,” he said.
Lender expects little change in house prices over the remainder of the year ‘so long as the economic climate does not worsen substantially’
House prices fell by 0.6% in July, reversing much of the 0.8% increase recorded in June, according to mortgage lender Halifax.
The bank’s latest snapshot of the housing market echoes that of rival lender Nationwide, which reported a 0.7% fall in July. But while Nationwide put the annual decline at 2.6%, Halifax said it was just 0.6%.
The three-month change, which is regarded as a better indicator of the state of the housing market, showed prices remained flat. Halifax now puts the average value of a UK home at £161,094 – about the same as in the summer of 2009.
The bank’s housing economist, Martin Ellis, said the ongoing stability in prices was a result of a lack of activity in the market. According to the Royal Institution of Chartered Surveyors the ratio of house sales to unsold properties has changed very little over the past 21 months.
Ellis said: “Looking forward, we expect little change in prices over the remainder of 2012, so long as the economic climate in the UK does not worsen substantially.”
However, Howard Archer, chief UK economist at IHS Global Insight, said the latest round of price data heightened his belief that the market would fall further over the remainder of 2012.
“With the economy slumping in the second quarter, and the outlook highly uncertain amid worryingly strong domestic and international (mainly eurozone) headwinds, we believe there is a very real and mounting danger that house prices could fall by appreciably more than 3% from current levels.”
Property website Rightmove said homebuyers and sellers were locked in a stand-off over prices, which could lead to a further fall in sales over the coming months.
The website, which surveyed almost 40,000 home movers, found that 49% of those planning to buy within the next 12 months believe house prices in their local area are above what they regard as “fair and reasonable”. Only a third of those expecting to sell held the same view, suggesting they may not be prepared to cut prices to secure a sale.
Recent figures from mortgage lenders show that approvals for new loans fell to an 18-month low in June and, at 44,192, are running at about half of the average monthly level seen since 1993.
The government’s new funding for lending scheme is designed to boost mortgage lending and kickstart the housing market, but so far many of the deals have been aimed at those with large deposits.