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Spend & Save

Simon Read: Home prices soar but there's better news

The latest housing survey published by the Halifax on Thursday revealed the highest monthly jump in prices for almost seven years. The Halifax reported an increase in property prices of 2.6 per cent in May compared to April, the first rise for four months. The increase takes the price of an average British home to £158,565 and echoed Nationwide's rival survey published at the end of May that revealed a 1.2 per cent monthly price rise. But a jump in house prices does not mean it's time for homeowners to jump for joy. For starters the figures relate to just one month – and that kind of leap could simply be as a result of the pent-up demand from thousands of homebuyers who had delayed making a purchase.

For a better indication of the current state of the housing market, it's a good idea to look at the annual figure. While there has been some easing in the decline, house prices still dropped by 16.3 per cent in May. While that was the lowest level of decline since December, its only slightly more positive than April's 17.7 per cent annual decline. That means anyone now bandying around the 'recovery' word is getting a little ahead of themselves. As Howard Archer, economist at IHS Global Insight, points out:

"Sharply higher and rising unemployment, very low wage growth and an unwillingness of many people to commit to buying a house when they still have serious concerns about the outlook are all factors that are likely to continue to weigh down on the housing market for some time to come." In other words, homebuyers are still feeling a bit green, rather than embracing green shoots.

As the Halifax itself says: "House sales remain substantially below their long-term average, and market conditions are expected to remain difficult with housing activity continuing at low levels over the coming months." Backing up that view is the expectation that unemployment is set to rise further in the coming months and could yet climb to the three million mark. And with lenders still relatively negative about lending to first-time buyers, the ide that last month's increase could be the first steps of a bottoming out of the market look to be well off the mark.

In fact, there was better news for struggling homeowners elsewhere this week. The City Watchdog has announced plans to crack down on sale and rent-back schemes. These are the deals that the OFT described last year as having "the potential to cause serious harm to homeowners who are often already in a vulnerable position". Companies selling the schemes buy properties at a knock-down price but then allow the former owner to rent it back from them. They are often sold as a way out of financial difficulties without losing your home, but Citizens Advice has reported many cases of people losing money – and their homes – as the new owners have slung them out after a few months.

The schemes are to become regulated by the Financial Services Authority from 1 July, which should stop the unscrupulous cowboys making people homeless. However, the best advice for any homeowners having mortgage payment difficulties is to ignore the schemes and instead talk to their lender and get independent advice on their options.