House prices continue to rise steadily despite Brexit concerns

Annual UK house price growth remained strong at 3.5 per cent over the first quarter of 2017. According to Nationwide’s house price index, the average house cost £207,308, up from just under £206,000 in the previous quarter. Halifax’s house price index puts the average price of a house even higher at £219,755.

In comparison with the previous quarter’s 4.5 per cent annual increase, house price growth slowed across the country. The 3.5 per cent also represents a softening compared with the first quarter of2016, when the annual increase was 5.7 per cent and the average house cost £200,251. The slight easing off is partly due to political uncertainty, and also to changes in the tax regime affecting second homes and buy-to-let property.

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The house price gap between England and the rest of the UK has continued to widen: in Wales, house prices increased by just 1.2 per cent over the year; in Scotland prices rose by 2.9 per cent, and in Northern Ireland they increased by 3.8 per cent. These figures compare with an increase of 4.7 per cent over the year in England. London remains a huge anomaly compared with the rest of the UK in terms of its average house price, which now stands at £478,782. Moreover, annual house prices in the capital rose faster than elsewhere, up 5 per cent in the first quarter of 2017. This represents a slight pick-up in pace from the previous quarter, when they increased by 3.6 per cent. The outer south east experienced the steepest price increase, with a rise of 6.4 per cent over the year. In contrast, house prices in the north of England fell by 0.4 per cent.

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House prices remain underpinned by a shortage of housing stock and low borrowing costs for buyers, and this situation is unlikely to change over the short term.

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The slight slowdown this month is ‘against a backdrop of geopolitical uncertainty, with Brexit and political populism affecting sentiment’, says James Allen, head of Walker Crips Alternative Investments.

He adds that the uptick in UK inflation will put pressure on affordability, as household incomes increasingly struggle to keep up with moderate house price growth. ‘As the affordability index is nearing peak level, we would expect this to apply the brakes to house price growth.’

However, Jonathan Hopper, managing director at Garrington Property Finders, believes buyers could benefit from the economic backdrop. He says: ‘The acute lack of supply is steadily nudging up average prices, but pragmatic vendors have long since grasped that this is anything but a seller’s market.’ He argues that record levels of employment and record low interest rates are boosting buyers’ confidence. ‘The result is that, despite the continued rise in average asking prices, astute buyers are increasingly able to ask for, and secure, sizeable discounts. Buyer confidence is not unlimited, though.’

Nobody really knows what impact the cut to mortgage tax relief on second homes is going to have, says Alex Gosling, chief executive at ‘The response to the second-homes tax that came in last April was dramatic before and after the event, but we didn’t see investors completely desert the market as many people predicted.

‘Investors quickly adapted to the changes, and that may well happen when the phasing out of mortgage tax relief on buy-to-lets begins. We could well see more investors buying for cash to negate the impact of cuts to tax relief, particularly people in retirement. Because of pension freedoms, they have cash to invest in a buy-to-let property as part of a diverse investment portfolio.’

As long as borrowing rates remain at a historic low, predictions for the year ahead are positive, argues Rob Weaver, director of investments at Property Partner. However, he adds: ‘We probably won’t see London house prices over the short term race in front with dizzying double-digit rises.’

The capital has been the powerhouse of UK property price growth. However, Weaver says: ‘There’s now softness in the centre, in contrast to the situation in outer London boroughs and particularly along the Crossrail route, where prices look set to rise faster as the much-hailed new rail route goes live next year.’ He suggests that although the London market is expected to slow in 2017, established markets such as those in Clapham, Balham and Wandsworth should remain solid.

Weaver also suggests the north-south divide may well narrow as the London market loses its lustre because of a lack of affordability, while other big cities such as Manchester, Leeds and Birmingham catch up. 

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