House price inflation slows during June

The annual rate of house price inflation dropped from 9.8% to 8.7% in June, and the rate of inflation is expected to "drift lower", according to the Nationwide building society . Although the price of a typical UK property increased by 0.1% in June compared to the previous month, the rate of increase has slowed markedly from 0.5% in the previous month. The average price rose to £170,111 from £169,162 in May. Martin Gahbauer, Nationwide's chief economist, said: "The month of June presented a picture of broad stability for the housing market. Barring a significant pick-up in house prices over the next few months, the annual rate of inflation should continue to drift lower, in light of the very strong price increases recorded during the summer of 2009. Over the first half of 2010, UK house prices have risen by a cumulative 3%. "Recent indicators point to an increase in the supply of property coming to the market for sale, perhaps in response to the abolition of HIPs in the opening days of the new coalition government. With the level of demand remaining broadly stable, this would help to explain the recent slowdown in the rate of house price inflation." He said the government's decision to implement an immediate hike in the rate of capital gains tax from 18% to 28%, rather than deferring the increase, helped to prevent a short-term supply distortion caused by large numbers of property investors selling up to avoid the tax rise. A flood of properties being put up for sale would have driven prices down more drastically. However he added: "Looking beyond the short term, the spending cuts and tax increases in the budget will squeeze household disposable incomes, which are undoubtedly an important driver of house prices. Given that the already elevated level of house prices-to-earnings ratio, this limits the very strong upward momentum in property values we have seen over the past year. However, the acceleration of the fiscal consolidation means that interest rates are likely to be lower than they otherwise would have been, which should provide some offsetting support to households and mortgage affordability." The curtailed inflation rate reported by Nationwide is in line with other statistics published this week. Yesterday the Bank of England said the number of mortgages approved for house purchase remained broadly unchanged during May, while the Land Registry reported a 0.2% drop in house prices in England and Wales in May – the first monthly fall in values since April 2009. David Smith, senior partner at property consultants Carter Jonas , said: "The latest Nationwide figures are broadly what we were expecting to see in June, as the abolition of HIPs start to have an impact on the supply-demand balance. There has certainly been more properties coming on to the market in recent weeks, and although on the one hand this is positive news for a market that has been bereft of stock, at the same time there hasn't been any noticeable uplift in buyer demand, which will inevitably see a suppression in house prices as a result. "Where house prices go from here is difficult to predict because there are so many factors at work at the moment. The fallout from the budget will certainly have a major role to play in the coming months, with uncertainty surrounding impending public sector cuts and higher taxes, and of course we still have the ever-present threat of interest rate rises in the mix. "Although these figures suggest house prices are starting to flatten out at their current level, the top end of the market is still performing remarkably well, with double digit price growth since the start of the year, and a stronger-than-ever demand for properties in desirable locations."