House prices across Britain have increased at their slowest rate for more than six years, with London experiencing its biggest slump in a decade as Brexit concerns drag on growth.
The Office for National Statistics said average house prices in the UK rose by 0.6% in the year to February, the lowest rate of growth since September 2012, and down from 1.7% in January.
The price of an average London home fell by 3.8% over the year, the steepest drop since the depths of the last recession in mid-2009, and faster than the 2.2% decline recorded in the year to January.
The consumer price index (CPI) measure of inflation unexpectedly remained at 1.9% in March, unchanged from a month earlier – offering some respite for UK households.
Interest rates on loans for students in England, Wales and Northern Ireland will, however, be set at 5.4% after the March retail price index (RPI) measure of inflation came in at 2.4%.
The government uses the March reading of RPI – which is typically higher than CPI – plus three percentage points to set the rate charged on student loans each year. The rate is lower than a year ago, when an RPI of 3.3% in March 2018 pushed student loan interest rates to 6.3%.
An influential House of Lords committee has called for the government to stop using RPI for student loans, arguing it is unfair because ministers use different measures of inflation when it suits them best.
While many payments to the government are determined by RPI, several benefits it pays have been switched to the lower CPI measure.
The latest analysis by the ONS suggests that the slowdown in house price growth in Britain has spread from London to other parts of the country. House prices slipped across the south-east of England, while there was zero growth in Yorkshire and the Humber, and falling prices in the north-east.
Property values are, however, racing ahead in the Midlands and the north-west, where the average value of a home is below the national average of £226,000. While London house prices are falling over the year, the capital remains the most expensive place in Britain to buy a property, at an average of £460,000.
The snapshot comes after Labour floated the idea of a house price inflation target to keep a lid on the growth in property prices across the country.
Though still only an idea, the party has not explained how the policy would work in times when house price growth is slowing, or how it might vary to cope with different rates of growth across the country.
The Office for Budget Responsibility, the government’s economic forecaster, expects average house prices across the country will fall this year.
House prices across the country have, however, risen over the past two decades to seven times the average full-time wage, up from four times wages in the late 1990s. Economists have said that the rapid acceleration in prices over recent years meant price growth was always bound to ease as homes became unaffordable.
Economists also said uncertainty around Brexit was holding back growth, particularly in the London housing market, after years of prices rising above inflation.
Price growth has been slowing since the middle of 2016, with a decline in the number of transactions following the EU referendum as the heightened political uncertainty puts many homeowners off moving. Analysts said tax changes and restrictions on the growth of the buy-to-let sector also had an impact.
Average wages across Britain have finally begun to rise, helping households to start repairing the damage to their finances since the financial crisis. Economists said this should support demand for homes in future.
Russell Galley, managing director of Halifax, said: “While the slowdown in house price growth may not be welcomed by homeowners, the narrowing gap between prices and wages should improve mortgage affordability for all.”