House prices 2% up over a year

House prices were 2% higher than a year ago in July as the strength of the London property market outweighed declines elsewhere in the UK. The annual growth rate revealed today by the Office for National Statistics (ONS) was slower than the 2.3% recorded in both May and June, with the average price across the UK standing at £234,000.

England recorded a 2.4% annual increase, taking typical prices to £242,000, while Scotland saw a 1.1% drop, pushing average prices to £183,000, and prices in Wales fell by 0.2% to reach £159,000.

Northern Ireland recorded a 10.9% year-on-year drop in house prices to stand at £130,000, continuing a trend of sharp decreases which analysts have put down to prices re-adjusting after they soared before the financial crisis struck.

Most of the house price growth was concentrated in the South East of England. The ONS said that if London and the South East were stripped out of the figures, UK prices would have only risen by 0.6% in the 12 months to July.

Prices rose by 5.7% in London year-on-year to reach £397,000 on average, while the North East, which saw a 0.5% annual decline, had the lowest average house price of the English regions at £145,000.

Analysts have predicted that a widening gap between the stronger growth in sellers putting their homes on the market than the numbers of potential buyers will push prices downwards for the rest of the year against the background of a weak economy and the ongoing eurozone crisis.

The Bank of England and the Treasury recently launched a “funding for lending” scheme to unclog the flow of credit, but much of the competition among mortgage lenders has been concentrated around borrowers with larger deposits.

Howard Archer, chief UK and European economist for IHS Global Insight, said: “We retain the view that house prices will trend gradually lower over the latter months of 2012 and very possibly beyond in the face of limited activity, low and fragile consumer confidence, and muted earnings growth.”

The average price paid by a first-time buyer rose by 1.8% year-on-year to £174,000, the ONS figures showed. Existing owners paid £269,000 on average, representing a slightly higher year-on-year increase of 2%.