Hx House Price Index-July2007

RNS Number:3791B
HBOS PLC
02 August 2007

Halifax House Price Index

National Index July 2007

All Houses, All Buyers Index (1983=100)

Index (seasonally adjusted) 643.8 Monthly Change 0.7% Annual Change 11.2%

Standardised Average Price (seasonally adjusted) #198,915

Key Points

* House prices increased by 0.7% in July. This is the fourth consecutive
month that house prices have grown by less than 1.0%, confirming that house
price inflation is slowing.

* House prices increased by 1.3% between April and July. This was the
smallest three monthly rise - a good indicator of the underlying trend -
since August 2006.

* Mortgage approvals to fund house purchase in 2007 Q2 were 8% lower than in
2006 Q4. The level of new buyer interest in purchasing a house fell for the
seventh successive month in June. (Sources: Bank of England & RICS)

* Homeowners who took out a fixed rate deals two years ago will face higher
mortgage payments when they re-mortgage. A borrower with a #114,000
mortgage, taking out a two year fix in 2005 at 5.08%, faces an increase in
monthly payments of around #65, or 10%, when the deal expires this year. The
overwhelming majority of these borrowers are expected to be able to absorb
the increase in payments as earnings and housing equity have risen in the
past two years.

* A healthy economy and strong labour market continue to underpin housing
demand. The UK economy recorded an unprecedented 60th consecutive quarter of
rising activity in 2007 Q2. Over the 15 years from 1992 Q3 to 2007 Q2, the
level of real GDP in the UK increased by 53% compared with a 32% increase in
the previous 15 years.

* We have recently revised our house price growth forecast for 2007 from 4%
to 6%. This upward revision largely reflects the greater upward movement in
prices than expected during the first four months of the year. Pressure on
householders' finances is likely to increasingly curb housing demand over
the remainder of 2007, causing house price inflation to ease.

Commenting, Martin Ellis, Chief Economist, said:

"House prices increased by 0.7 per cent in July. This is the fourth consecutive
month that house prices have risen by less than 1.0 per cent, confirming that
house price inflation is slowing.

We expect the downward trend in house price growth to continue as the five
interest rate rises since last summer have an increasing impact on household
spending and housing demand. Sound economic fundamentals, high levels of
employment and a shortage in the number of properties available for sale,
particularly in London and the South East, will, however, continue to support
house prices."

House price growth is slowing.....

House prices increased by 1.3% between April and July. This was the smallest
three monthly rise - a good indicator of the underlying trend - since August
2006. The three monthly growth rate has fallen sharply in recent months,
dropping from a high of 4.5% in March.

.....and housing market activity also continues to ease

Mortgage approvals to fund house purchase in the three months to June (Q2) were
4% lower than in the preceding quarter. This continues the downward trend since
last autumn with approvals in 2007 Q2 being 8% lower than in 2006 Q4. (Source:
Bank of England)

The level of new buyer interest in purchasing a house fell for the seventh
successive month in June, indicating that potential buyers have become more
cautious. Completed property sales also fell in 2007 Q2 and were 6% lower than a
year ago. (Source: RICS)

Modest pick-up in annual house price inflation is likely to be short-lived...

The annual rate of house price inflation has edged up in the past two months
from 10.6% in May to 11.2% in July despite smaller monthly rises. This increase
in the annual rate is due to the weakness in house prices in mid 2006 when
prices fell by 0.3% between April and July. The modest recent pick-up in the
annual rate is likely to be short-lived. We expect house price inflation to ease
over the remainder of the year as the impact of higher interest rates is
increasingly felt.

Greater take-up of fixed rate mortgages is delaying the full impact of higher
interest rates...

The increase in the proportion of borrowers taking out a fixed rate mortgage in
recent years appears to have affected the timing of the housing market's
response to interest rate changes. As a result, house price inflation and
activity are likely to take longer to slow as interest rates rise because many
borrowers are only affected when their fixed rate deal matures. Over the past 18
months, nearly 70% of new mortgages have been taken out on fixed rate terms;
substantially above the average of around 40% since 1993.

...homeowners who took out a fixed rate deal two years ago face higher payments
when they remortgage...

The CML estimates that around 1.3 million borrowers took out fixed-rate
mortgages in 2005, and a further 1.5 million in 2006. The majority of these
mortgages would have been fixed for two years. A borrower with a #114,000
mortgage - the average in 2005 - taken out at the average two year fixed rate in
2005 of 5.08%, would be making monthly repayments of #669.02. When the deal
expires this year, the new monthly repayments would be #733.72 - an increase of
10% or #65 - assuming that the borrower moves onto the current average two year
fixed rate of 6.04%.

...but most borrowers will be able to absorb the rise in payments

The estimated 2.8 million borrowers who took out a fixed rate mortgage in 2005
and 2006 account for around 25% of all mortgage borrowers. The overwhelming
majority of these borrowers are expected to be able to absorb the increase in
payments. Most people's earnings will have risen since they took out the
mortgage - average earnings have risen by 7% over the past two years in monetary
terms - providing more income to finance the higher interest payments. In
addition, most borrowers facing higher payments will have accumulated a
significant cushion of housing equity as a result of house price inflation since
they took out their mortgage.

Economic fundamentals are sound......

A healthy economy and strong labour market continue to underpin housing demand.
The UK economy recorded an unprecedented 60th consecutive quarter of rising
activity in 2007 Q2. Gross domestic product (GDP) increased by 0.8% between Q1
and Q2, above its long-term average pace (0.7%). Over the 15 years from 1992 Q3
to 2007 Q2, the level of GDP in the UK increased by 53% after adjustment for
inflation. This is significantly faster than in the previous 15 years when the
level of GDP increased by an inflation-adjusted 32%.

The number of people in employment has risen strongly in the past few years
against the background of healthy economic growth. Employment continued to rise
in the three months to May with the total number 180,000 higher than a year ago.
(Source: ONS)

...and supply shortages to support house prices

A sound economic backcloth, together with an ongoing shortage of both new
housebuilding and secondhand properties for sale, should continue to support
house prices.

House price forecast growth in 2007 revised from 4% to 6%

We have recently revised our house price growth forecast for 2007 from 4% to 6%.
This upward revision largely reflects the greater upward movement in prices than
expected during the first four months of the year. Pressure on householders'
finances is likely to increasingly curb housing demand over the remainder of
2007. The increase in mortgage rates since last summer is having an effect on
housing affordability and will bite further during the coming months. Negative
real earnings growth so far this year and rising food prices will also reduce
the income households have available for housing.

NOTE: The 11.2% number is the quarterly year-on-year figure. This figure
provides a much better picture of underlying trends compared to a monthly
year-on-year number as it smoothes out any short-term fluctuations.

The Halifax House Price Index is prepared from information that we believe is
collated with care, but we do not make any statement as to its accuracy or
completeness. We reserve the right to vary our methodology and to edit or
discontinue the indices at any time for regulatory or other reasons. Persons
seeking to place reliance on the indices for their own or third party commercial
purposes do so at their own risk.

This information is provided by RNS
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