House sales to fall but prices to rise 10%, says Nationwide

Nationwide, Britain's biggest building society, yesterday painted its grimmest picture of the UK housing market for several years when it predicted the number of house sales would fall by a tenth this year.

Nationwide, Britain's biggest building society, yesterday painted its grimmest picture of the UK housing market for several years when it predicted the number of house sales would fall by a tenth this year.

But the society is standing by its existing forecast that prices would rise by an average of 10 per cent during the year, despite new monthly figures showing a marked slowdown.

Prices rose by only 0.9 per cent in June, compared with 1.4 per cent in May. This takes the annual rate of house price inflation down to 19.2 per cent. In the first three months of 2003 it was running at an annualised 25.8 per cent.

Alex Bannister, Nationwide's group economist, said: "A weaker UK labour market will provide a check on house price growth, particularly where affordability is stretched. However, the next movement in interest rates is still likely to be down and any rise in unemployment looks modest by historical standards."

The most startling development is the growing divergence between the South-east and the North of England. London price growth slowed sharply, with annual house price inflation of just 15 per cent. But the North-east and Yorkshire & Humberside are experiencing 30 per cent plus annual inflation rates. The North West and Yorkshire & Humberside also reached an average property price of £100,000 for the first time.

Mr Bannister said: "It is likely that weakening pay and job prospects and worsening affordability will reduce annual growth further in London during the rest of the year: we continue to expect between 2 and 5 per cent growth this year in the capital. In the rest of the South-east we expect to see 5 to 10 per cent growth which would be lower than the Midlands, where 10 to15 per cent growth is likely, and the Northern regions, where growth in excess of 15 per cent is possible. These UK and regional averages mask significant variations at local level and across price brackets."

The deceleration in the housing market may encourage the Bank of England's Monetary Policy Committee to cut interest rates when it meets next week, after the Bank's new Governor, Mervyn King, indicated the recent strength of sterling was harming economic growth.

However, the latest Chartered Institute of Purchasing and Supply index yesterday suggested that orders, input and exports were falling more slowly. The overall index rose to its highest 2003 level so far, 49.2, from May's upwardly revised 48.3. A score under 50 indicates contraction, and above 50 signals expansion.

The pound rose 1.2 cents to $1.6624 following unexpectedly weak manufacturing data from the US. The Institute for Supply Management's manufacturing index was 49.8 last month, compared with 49.4 in May and predictions of 51. However, if US factories quieten, they are likely to buy fewer goods from the UK.

HOUSEBUILDER SAYS ITS GRIM DOWN SOUTH BUT GOOD UP NORTH

The price of new houses is continuing to rise strongly in the North and the Midlands but the market has become "sticky" in London and the South-east, Britain's fourth-biggest house builder, Taylor Woodrow, said yesterday.

Painting a picture of a housing market which was slowing down but not crashing, Taylor Woodrow said the first six months of the year had seen a return to "more normal trading conditions". Ian Napier, chief executive, said most house builders were struggling to start sufficient sites to meet demand because of a combination of land availability and planning delays.

Sales volumes fell 8 per cent in the first six months and the overall number of houses Taylor Woodrow expects to sell in the UK for the year as a whole is likely to be similar to last year's level of 6,300.

Prices had held up in the first half of the year, however, and this meant that operating profits for the six months to the end of June would be well ahead of last year's, Mr Napier added. For the year as a whole the group said it expected earnings to be in line with market forecasts.

Mr Napier said he expected house prices in the buoyant regions of the North, Midlands, Scotland and Wales to increase by 5 to 6 per cent this year. However, they would only rise by about 2 per cent in London and the South-east where Taylor Woodrow is finding it slow and difficult to sell new houses in the £500,000 and upwards bracket.

MICHAEL HARRISON