Have house prices peaked?

Research by property website Hometrack suggests that UK house prices are nearing their peak and could soon start to fall. The interest rate rise in early May has at last slowed house price growth, and this could be bad news for buyers who have just bought a property.

There has been a rise in the number of properties put up for sale, ahead of the proposed date for the implementation of the Home Information Packs (HIPs), which was 1 June, but which has now been postponed to 1 August. But this has coincided with a reduction in the number of buyers, who have been put off by rising interest rates. By the laws of supply and demand, a reduction in house prices is therefore likely.

House prices went up by 0.6% in May, to an average of £175,600 for a home in England and Wales. This was down from the April rise of 0.7%. Annual house price inflation was down from 6.8% to 6.7%.

Experts forecast that the headline rate of house growth will slow rapidly throughout the rest of 2007 to around 4%, with a continued squeeze on consumers’ purchasing power and over-supply. Any further rise in interest rates – and these are expected – will make the situation worse.

May saw no overall increase in the number of buyers registering with estate agents, but the Hometrack survey showed that there was a 6% increase in properties up for sale as sellers tried to avoid the need and cost of HIPs, which could amount to £650. The original date for their introduction was 1 June, but Communities and Local Government secretary Ruth Kelly was forced to backtrack last week to a new date of 1 August, and a restriction to houses with four or more bedrooms, upon realisation that there were not enough qualified energy performance inspectors. Energy Performance Certificates will become compulsory by EU legislation in 2009.