Price inflation slows but supply shortages continue for first time buyers

26-Jul-2007

House price inflation for July was just 0.1 per cent, new figures reveal, but first time buyers have been cautioned not to expect too much too soon from the government's recently announced housing plans.

The Nationwide House Price Index shows that the annualised rate of growth fell from 11.1 per cent to 9.9 per cent this month, with the monthly rise dropping by an entire percentage point.

But Nationwide officials advised that the correction in the market was likely to continue due to the UK's strong economic performance.

"The sharp slowdown in July's house price numbers could show that potential homebuyers are thinking twice about overstretching themselves in a higher interest rate environment," commented Nationwide chief economist Fionnuala Earley.

"Relieving supply-side pressures on house prices will therefore be a gradual process, with more significant effects in the medium to long term than in the immediate future. In addition, with limited land supplies available, careful choices need to be made about where to locate new homes," Ms Earley added.

The Bank of England raised interest rates to 5.75 per cent this month, though a 6-3 vote suggests that there remains a degree of scepticism over future rises despite inflation still continuing to exceed the government's two per cent target.

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