RNS Number : 6822C
  HBOS PLC
  04 September 2008
   


    Halifax House Price Index
 National Index  August 2008


                                             All Houses, All Buyers Index (1983=100)
  Index (seasonally adjusted) 563.7      Monthly Change -1.8%    Annual Change-10.9%
                          Standardised Average Price (seasonally adjusted)  �174,178


    Commenting, Martin Ellis, Chief Economist, said:
    "House prices declined by 1.8% in August. A solid labour market, low interest rates and a shortage of new houses continue to support the
market. The pressure on householders' income, together with the reduction in the availability of mortgage finance due to the global
financial markets crisis, is resulting in both lower property prices and activity levels.

    This week's announcement on stamp duty is a welcome development and will benefit a significant number of homebuyers, particularly
outside the south east of England. Market conditions, however, will remain challenging."

 Key Points
 * House prices fell by 1.8% in August.  This was similar to the previous two
 months - June (-1.9%) and July (-1.7%) - but lower than in March (-2.5%) and
 May (-2.5%). 


 * House prices in August were 10.9% lower on an annual basis. The UK average
 price has returned to the level it was at in February 2006. 


 * A solid employment market and low interest rates underpin the housing
 market.  Our research shows that the labour market is the key driver of the
 housing market. The number of people in employment increased by 20,000 over
 the three months to June compared with the previous quarter and by 384,000
 over the past year to a record 29.56 million. 


 * House price to earnings ratio is declining.  The house price to average
 earnings ratio - a key affordability measure - has fallen from a peak of 5.84
 in July 2007 to 5.13 in June 2008. We expect a further decline as prices
 continue to soften.


 * The temporary raising of the initial stamp duty threshold from �125,000 to
 �175,000 should reduce the st










    Strong labour market supports the housing market
    The labour market is the key driver of the housing market. The number of people in employment increased by 20,000 over the three months
to June compared with the previous quarter and by 384,000 over the past year to a record 29.56 million. 
    Housing demand falls due to pinch on incomes, affordability levels and reduced mortgage availability
    Higher food and fuel prices - which have increased by 12% and 17% respectively over the past year - have reduced the amount of
discretionary income available to households. The pinch on incomes, together with the high level of average house prices in relation to
earnings, has made it difficult for potential house purchasers to enter the market. In addition, the decline in credit availability
resulting from the crisis in the financial markets is a further constraint on buyers. These factors are curbing housing demand, causing
house prices and activity to fall.
    Housing market activity declines further
    The number of mortgages approved to finance house purchase fell by 6% from a seasonally adjusted 35,000 in June to 33,000 July and was
71% lower than in July 2007. (Source: Bank of England)
    The number of new buyers interested in home purchase and the number of agreed sales both continued to fall in July, but the pace of
decline slowed for the third successive month. (Source: RICS)
    Annual house price inflation at -10.9% in August
    The annual rate of house price inflation - measured by the average price over the three latest months compared with the same period a
year earlier - was -10.9% in August.  The UK average price has returned to where it was in early 2006. 
    House price to earnings ratio is declining 
    The house price to average earnings ratio - a key measure of housing affordability - has fallen from a peak of 5.84 in July 2007 to 5.13
in June 2008. We expect a further decline over the coming months as property prices continue to soften.

    Stamp duty
    The government's announcement this week that it is raising the lowest stamp duty threshold from �125,000 to �175,000 for a year from 3rd
September will reduce the stamp duty burden for a significant number of homebuyers.  This brings the lowest threshold broadly in line with
the current average house price.
    Almost a quarter of a million (230,000) homebuyers in England and Wales would not have paid stamp duty over the past year if the
threshold had been �175,000 rather than �125,000. (There were a total of 475,623 sales below �175,000 over the four quarters from 2007 Q3 to
2008 Q2 with 245,414 below �125,000.) 
    In percentage terms, 49% of sales in the last year were below �175,000 compared with 26% below �125,000.  Therefore, around a half of
all sales would not have been potentially liable to stamp duty under the new criteria compared with one quarter under the previous �125,000
threshold.
    First-time buyers (FTB), in particular, will benefit from the change to the stamp duty threshold.  The average price paid by a FTB in Q2
2008 was �144,283 with an average stamp duty bill of �1,443.  By comparison, the average FTB will pay no stamp duty over the next 12 months.
 The proportion of FTBs who would have paid stamp duty if the threshold had been �175,000 over the past year would have been 31% rather than
the 60% of FTB purchases that were above the existing threshold of �125,000.  We estimate that a threshold of �175,000 rather than �125,000
would have removed 80-90,000 FTBs from the stamp duty tax net over the past year.



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