House prices increased by 7.8 per cent in 2014 but the pace of growth in property values is expected to slow this year, Halifax has reported.
On a month-on-month basis, Halifax said average UK property prices rose by 0.9 per cent between November and December, pushing them to £188,858 typically.
Halifax predicts that, across the country, the pace of growth in values will cool further in the coming months, meaning that property prices will increase by between 3-five per cent during the whole of this year.
The year-on-year increase in property values has been gradually slowing down since it reached a peak of 10.2 per cent in July.
Halifax housing economist Martin Ellis said housing demand from would-be buyers has been dampening since the summer, which has led to a reduction in both house price growth and property sales.
He put the slowdown down to a combination of factors, such as a deterioration in affordability for home buyers as a result of rising house prices, relatively low earnings growth and speculation over exactly when interest rates are likely to start rising, which will have the effect of pushing up mortgage costs.
Mr Ellis said: “We expect further moderation in house price growth over the coming year, with prices nationally predicted to increase in a range of three per cent to five per cent in 2015.
We expect further moderation in house price growth over the coming year
“Housing demand, however, should continue to be supported by a growing economy, rising employment levels, still low mortgage rates and the first gain in ‘real’ earnings for several years.”
Earlier last week, a Bank of England survey of lenders found that in the final quarter of last year, demand for mortgages for house purchase decreased “significantly”, recording the sharpest contraction seen since 2008.
This took lenders by surprise, as they had been predicting a rise in demand in the final months of 2014.
Lenders expect demand for mortgages from home buyers to increase slightly over the coming three months.
Several lenders have slashed their mortgage rates to their lowest ever levels in recent months. Today, Barclays cut the rate on a 10-year fixed-rate mortgage to the lowest level that experts have ever seen.
The deal, available at a rate of 2.99 per cent, requires a 40 per cent deposit and comes with a £999 fee. Financial information website Moneyfacts, whose records go back 21 years, said the rate is the lowest it has seen on a 10-year fixed-rate mortgage.
There have also been predictions that the Government’s recent overhaul of stamp duty, which has done away with the much-criticised “slab” structure of the tax in favour of a graduated version, will encourage more people to buy and sell homes this spring.
Halifax has said the stamp duty changes do not affect its overall prediction that house prices will increase by between three to five per cent this year. Some other commentators have taken a different view, and believe that the stamp duty changes will have a more significant impact on pushing prices up.
Matthew Pointon, a property economist at Capital Economics, said he expects house prices to “surprise on the upside” in 2015, with gains of around six to seven per cent.
He said: “The recent reforms to stamp duty are set to give house prices a shot in the arm.
“By lowering prospective buyers’ upfront costs, we estimate the change to stamp duty could boost prices by an additional three to five per cent.
“Furthermore, mortgage rates are falling, real wages are rising and consumer confidence is relatively high. All these factors will support housing demand.”
He said this forecast is based on the belief that banks will increase mortgage lending volumes. But if banks decide to act very cautiously, house price gains could be lower, he said.