This was the smallest increase since May (also 1.6%) and has slowed compared with quarterly rises of 2.0-2.1% in each of the previous four months. Prices in the three months to October were 6.9% higher than in the same three months a year earlier. This continued the upward trend in the annual rate.
House prices increased by 0.7% in October, the ninth consecutive monthly increase. Despite this, the average price in October remained significantly below the August 2007 peak.
Activity on an upward trend. Home sales during the July to September quarter were 21% higher than in the same three months last year. The number of mortgage approvals for house purchases – a leading indicator of completed house sales – in the three months to September was 11% higher than in the previous quarter. (Source: Bank of England, seasonally-adjusted figures.) Activity, however, remains significantly below the levels recorded in 2006 and 2007 with sales in 2013 Quarter 3 still 36% lower than in 2006 Quarter 3.
The low level of mortgage payments in relation to income is helping to boost housing demand. Typical mortgage payments for a new borrower - both first-time buyers and homemovers – at the long-term average loan to value ratio, accounted for 27% of disposable earnings in 2013 Quarter 3; its lowest proportion since 1999 Quarter 2 and comfortably below the average of 36% over the past 30 years.
House prices in the three months to October were 1.6% higher than in the previous three months; this rate is below the increases of 2.0-2.1% recorded in each of the previous four months.
Commenting, Martin Ellis, housing economist, said:
"House prices in the three months to October were 1.6% higher than in the previous three months; this rate is below the increases of 2.0-2.1% recorded in each of the previous four months. Despite the slowdown in the quarterly rate, the annual rate continued to rise with prices in the three months to October 6.9% higher than in the same three months last year.
"Demand has increased this year, putting upward pressure on house prices and increasing levels of activity. Low interest rates, and higher consumer confidence supported by the increasing evidence that a sustainable economic recovery may now be underway, are helping to increase housing demand. Schemes, such as Funding for Lending and Help to Buy, also appear to have boosted demand.
"Despite increases in the past year both house prices and sales remain below the levels reached at the height of the last housing market cycle in 2006/2007. Sentiment towards selling has also improved in recent months in response to the pick-up in the market, which should help to increase the availability of properties on the market over the coming months."
Jonathan Hopper, managing director of buying agents Garrington Property Finders, comments:
“Despite a slight drop off in price growth in the last three months, demand amongst buyers is there now and that's likely to drive prices higher. The housing market is building up a head of steam. Price rises are being driven by an incongruous but potent mix of confidence and fear. Buyer confidence has been stoked by a run of upbeat economic news and cheap mortgages, and a wave of pent-up demand has been unleashed by people’s nagging fear of being left behind as prices head skywards once again.
“Help to Buy is firing demand from those with small deposits. But for many of those taking the plunge and buying for the first time, the decision is more about heart than head - and the gut feeling that the current window of affordability will soon close. Real wages have fallen more than 9% since early 2008 - the deepest and longest period of decline since reliable records began in the mid-19th Century. Such strong house price growth could quickly push property ownership back out of reach for many. That may cool a market that is already at serious risk of overheating.
“At least the lenders have been more prudent this time round. The spread of mortgage loan-to-value ratios is broader than in the previous boom and a high proportion of borrowers have fixed their interest rates. That will provide much solace to the lenders and the government, but cold comfort to would-be buyers worried that prices are once again outstripping affordability.”
