Halifax reports increase in affordability

House prices fell by 2.2% in October, according to the latest Halifax House Price Index.

House prices in October were 13.7% lower on an annual basis. The UK average price has returned to the level in October 2005 (£168,031).

House price to earnings ratio – a key affordability measure – is improving significantly. The house price to average earnings ratio has fallen by 16% from a peak of 5.84 in July 2007 to 4.92 in August 2008. This is the first time that the ratio has been below 5.0 for four and a half years (4.99 in February 2004). Halifax expects a further improvement in the ratio as prices continue to soften. The long-term average is 4.0.

The UK average house price is 22% higher than five years ago. The average price stood at £138,208 in October 2003; nearly £30,000 lower than today.

Housing market activity shows signs of stabilising. The number of mortgages approved to finance house purchase was broadly unchanged in September for a third successive month, at a seasonally adjusted 33,000 compared to 32,000 in August. Approvals in 2008 Quarter 3, however, were 25% lower than in 2008 Quarter 2.

Martin Ellis, chief economist, said: “House prices declined by 2.2% in October. Housing market conditions remain challenging in the face of the significant pressures on householders’ incomes and the reduction in the availability of mortgage finance since last summer.

“But housing affordability is improving significantly. The house price to average earnings ratio has fallen below 5.0 for the first time for four and a half years. We expect a further improvement in the ratio over the coming months.”