House price growth is slowing: here are the reasons why

 

House prices have been rising at a slower rate over the past year, with the UK House Price Index (UK HPI) for March up by just 4.1 per cent. The monthly picture is bleaker, with the UK HPI, Halifax and Nationwide all reporting that house prices have fallen. Londoners, in particular, have seen more significant monthly price drops by as much as 1.5 per cent, while the East Midlands, West Midlands and East of England are the strongest performers over the year.

Key stats at a glance

UK House Price Index for March 2017: House prices up by 4.1 per cent annually. Average price of a UK property:  £215,847. Monthly change: -0.6 per cent.

Halifax House Price Index, April 2017: House prices up by 3.8 per cent annually. Average price of a UK property: £219,649. Monthly change:-0.1 per cent.

Nationwide House Price Index, April 2017: House prices up by 2.6 per cent annually. Average price of a UK property: £207,699. Monthly change: -0.4 per cent.

Your Move, April 2017: House prices up by 3.5 per cent annually. Average price of a property in England and Wales: £301,606. Monthly change: 0.1 per cent.

Click the graph below for a larger version.

The latest available figures from the UK House Price Index (UK HPI) for March shows an annual price rise of 4.1 per cent – compared with 5.8 per cent in February and 6.2 per cent in January – which means the average property in the UK is now valued at £215,847. Since February, prices have fallen by -0.6 per cent.

In England, annual house price growth was slightly above the national average at 4.4 per cent, with an average property price of £232,530. But, like the UK average, monthly house prices have fallen by 0.6 per cent since February 2017.

In Wales, the annual price growth was similar at 4.3 per cent – though the average property price is a more affordable £147,746. Here, monthly house prices have bucked the national trend and are up by 1.4 per cent since February 2017.

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Like last month, Londoners continue to see the market stagnate, with annual price growth up by just 1.5 per cent, compared with 3.7 per cent in February 2016. House prices have also fallen by -1.5 per cent since February 2017. This means the average property in the capital is now priced at £471,742.

Moving to the regions, the East Midlands and East of England saw the largest price hike over the year, with prices up by 6.7 per cent.

The only region to see prices fall over the year was the North East, where they were down by -0.4 per cent.

Commenting on the UK HPI, Mark Harris, chief executive of mortgage broker SPF Private Clients, says: ‘The housing market in March was bound to be quieter compared with a year ago because back then investors and second homeowners were rushing to purchase in order to beat the stamp duty hike at the beginning of April. This year there is no such impetus to focus the mind, with the market ticking along as usual.’

Housing demand ‘curbed’

Halifax reveals that house prices in the three months to April were 3.8 per cent higher than in the same period a year ago – prices in the three months to April were slightly lower than in the preceding three months, which Halifax says is the first quarterly decline since November 2012.

Martin Ellis, Halifax chief economist, reports that housing demand seems to have been ‘curbed’ in recent months and puts this down to issues over affordability following the rapid price growth witnessed between 2014 and 2016.

He adds: ‘Signs of a decline in the pace of job creation, and the beginnings of a squeeze on households’ finances as a result of increasing inflation, may also be constraining the demand for homes.

But he is positive about the outlook over the summer, saying: ‘A continued low mortgage rate environment, combined with an ongoing acute shortage of properties for sale, should nonetheless help continue to underpin house prices over the coming months.’

‘Weakest’ growth for four years

Nationwide reports an annual house price growth of 2.6 per cent – the weakest growth it has reported since June 2013. Monthly prices have also dropped for the second month in a row – down by -0.4 per cent.

Commenting on the figures, Robert Gardner, Nationwide’s chief economist, says: ‘In some respects, the softening in house price growth is surprising because the unemployment rate is near to a 40-year low, confidence is still relatively high and mortgage rates have fallen to new all-time lows in recent months.

‘While monthly figures can be volatile, the recent softening in price growth may be a further indication that households are starting to react to the emerging squeeze on real incomes or to affordability pressures in key parts of the country.’ 

Mr Gardner highlights affordability issues due to house price growth outstripping earnings for a long period. He cites the fact that a typical house price is currently 6.1 times average earnings close to the all-time high of 6.4 times recorded in 2007.

‘It is too early to conclude whether the slowdown in house price growth is merely a blip, a reflection of the impact of the squeeze on household budgets, or is due to mounting affordability pressures in key areas of the country,’ he adds.

House prices ‘subdued’

LSL Property Services/Acadata for April also reports ‘subdued’ house prices, but with a small rise of 0.1 per cent since March. It suggests annual growth of 3.5 per cent, which is similar to Halifax’s figures.

Again, London has seen prices fall by -0.1 per cent over the month since March. Over the year, the figure isn’t much stronger – an increase of 1.4 per cent.

Regionally, the index found that the West Midlands has the fastest price growth, with prices up 0.5 per cent monthly and 6.2 per cent annually. The top performing areas over the year are Buckinghamshire (up 12.1 per cent) in the South East, Ceredigion (10.4 per cent) in Wales, and Shropshire in the West Midlands (10 per cent).

The East of England also reported strong house price growth, up by 4.9 per cent annually and by 0.5 per cent monthly.

Methodology

Halifax House Price Index: This UK-wide index is based on the house purchase price at the mortgage approval stage. It calculates the annual change as an average for the latest three months compared with the same period a year earlier as it says its figures provide a better picture of the underlying trend compared to a monthly year-on-year number as they smooth out any short-term fluctuations.

Nationwide House Price Index: The data for this index for the whole of the UK is drawn from Nationwide’s house purchase mortgage lending at the post-survey approvals stage.

UK House Price Index: The UK HPI uses house sales data from HM Land Registry, Registers of Scotland, and Land and Property Services Northern Ireland and is calculated by the Office of National Statistics.

Your Move: This index, compiled by Acadata for the UK’s biggest estate agency network, uses the actual price at which every property in England & Wales was transacted, including prices for properties bought with cash, based on Land Registry data.

This article first appeared on our sister website Moneywise.


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