Housing market crawls to a halt with slowest price increases in a year

Prices in England and Wales grew by just 0.1 per cent during July, indicating that the days of soaring increases in property value may finally have reached an end.

The fact that so many first-time buyers have been priced out of the market, coupled with five interest rates rises in a year, has taken a toll on house price growth.

According to the Land Registry, the annual rate of house price growth eased to 8.8 per cent during the month, down from 9.1% in June, as the market continued to show signs of slowing down.

Last year the growth rate was in double figures.

Experts predict that the slow down will speed up over the rest of the year, although there will still be small year-on-year growth.

"It's going to be low single digits, and certainly not the kind of figures we've seen for the last five or ten years," said David Stubbs, senior economist at the Royal Institution of Chartered Surveyors.

The Land Registry said that the average house price rose to £181,460 last month. But in London, figures tell a different tale. with the average cost of a home now £342.963.

House price inflation in London and the South East actually jumped by 1 per cent during July.

Annual house price growth in London is now running at 15.5 per cent , outstripping the national figure by more than 6 per cent for the fourth month in a row.

The West Midlands saw the slowest rate of annual growth during the year to the end of July, with prices in the region an average of just 4.5 per cent higher than they had been 12 months earlier.

It is not just house prices that have hit a slow down. The number of homes changing hands has also dropped, reflecting the growing number of would-be first-time buyers who simply can't afford to take that first step on the ladder.

Only 92,192 homes changed hands each month between February and May, a drop from the same period last year, when around 94,500 properties were sold each month.

During May alone, transactions were down by 9 per cent compared with the same month of 2006.

Earlier this month the Royal Institution of Chartered Surveyors (RICS) said the number of first-time house buyers was falling at its fastest rate in more than three years.

Last night economist Mr Stubbs said: "The housing slowdown continues to accelerate as homeowners and prospective buyers deal with the impact of five interest rate increases since last August, and the most stretched affordability conditions for more than 15 years.

"The number of new buyer inquiries has fallen for eight months in a row and the amount of stock on estate agents books has risen every month since March, as supply is now outstripping demand."

He said while he did not expect house prices to drop, the figures did point to a quieter spell.

"A difficult 2008 looms for the housing market, and will be made even worse if interest rates rise to 6 per cent in the coming months," he said.

Earlier this month it emerged that first-time buyers are borrowing record amounts and stretching themselves to breaking point to realise their dream of owning a home.

The typical mortgage taken on by a young buyer has more than doubled in six years to an all-time high of £118,322. The figure equates to some 3.37 times the average salary of the buyer, which is also a record.

Higher loans have effectively been forced on buyers following a decade when house price growth of 156 per cent has massively outpaced a 35 per cent rise in incomes.