Will UK house price growth continue to slow?

Property price growth has slowed. However, limited supply of housing stock will help to shore up house prices.

The slowdown in house price growth to generally a 2 per cent to 3 per cent range in 2017 compares with 4 per cent to 5 per cent growth in 2016.

However, as reported last month, a lack of supply of housing stock is still driving prices upwards. Rightmove reports that the number of sales being agreed by estate agents is 4.8 per cent higher than the same period a year ago in all regions including London, where the number of sales agreed is up by 5.6 per cent.

The latest figures from the UK House Price Index (UK HPI) for July shows an annual price rise of 5.1 per cent over the year, putting the average property in the UK at £226,185. In England, prices have risen by 5.4 per cent, with a monthly price rise of 1 per cent, with the average property priced at £243,220.

In Wales, annual price growth has continued its downward trend and now stands at 3.1 per cent, with an average property price of £150,846. Since June, house prices have risen by just 0.3 per cent. In London, annual house price growth has continued to fall, with just a 2.8 per cent rise over the year and a 0.3 per cent monthly rise. The average price of a property in the capital is £488,729. Regionally, the East Midlands witnessed the highest annual growth, with property prices up by 7.5 per cent, while the North East had the greatest monthly price increase of 3.3 per cent.

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Commenting on the UK HPI, Thomas Fisher, economist, PwC, says that the housing market has remained ‘resilient’ over the summer months, but sees some regional variations. ‘Regionally, house price growth continues to be weaker in London and the South East, where year-on-year growth rates in July were 2.8 per cent and 3.8 per cent respectively. Meanwhile, growth of over 7 per cent in both the East Midlands and the East of England continues to drive average house price growth up for the UK overall.

‘The average house price in the South West hit a new high of £252,000, breaking through the quarter of a million mark for the first time. ‘Factoring in continued pressure on household incomes in the second half of the year, we anticipate a likely weakening in UK house price inflation to around 4 per cent on average for 2017.’

Buoyancy may be returning

Halifax reveals that house prices in the three months to August were 2.6 per cent higher than in the same period a year ago. It reports that house prices were up by 1.1 per cent since July, with the average price now £222,293.

Russell Galley, managing director, Halifax Community Bank, says: ‘Recent figures for mortgage approvals suggest some buoyancy may be returning, possibly on the back of strong recent employment growth, with the unemployment rate falling to a 42-year low. However, wage growth is still lagging increases in consumer prices, which is likely to add pressure on household finances and increase affordability challenges for some buyers.’

He adds that low mortgage rates and a shortage of properties for sale should help to support house prices.

Commenting on Halifax’s data, Jonathan Hopper, managing director of Garrington Property Finders, says that it shows that the property market has bounced back quickly after the usual summer hiatus. He says: ‘After months of uncertainty, the property market is slowly finding its feet again. The chronic shortage of supply has placed a floor under prices, while demand has been underpinned by a combination of benign interest rates and a robust jobs market.

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‘The market remains deeply fragile, but the listless limbo that followed the election result is fading as increasing numbers of previously hesitant buyers are piqued into action by the sense that stability – if not quite normality – is returning.’

Slowdown is surprising

Nationwide reports that annual house price growth has slowed from 2.9 per cent in July to 2.1 per cent in August, with an average property price of £210,495.

Commenting on the figures, Robert Gardner, Nationwide's chief economist, says: ‘The economy grew by circa 0.3 per cent per quarter in the first half of 2017, around half the pace recorded in 2016. The number of mortgages approved for house purchase moderated to a nine-month low of circa 65,000 in June, and surveyors have reported softening in the number of new buyer enquiries.

‘Nevertheless, in some respects the slowdown in the housing market is surprising, given the ongoing strength of the labour market. The economy created a healthy 125,000 jobs in the three months to June and the unemployment rate fell to 4.4 per cent – the lowest rate for over 40 years. In addition, mortgage rates have remained close to all-time lows.’

Mr Gardner suggests that the rising of cost of living and its impact on household finances may have led to affordability issues for some home buyers, particularly in London and the South East.

However, he believes that limited supply of housing stock will help to shore up house prices, adding: ‘The stock of homes on estate agents’ books remains close to 30-year lows and the number of new homes coming on to the market remains subdued.’ He expects house prices to rise by around 2 per cent over 2017.

Commenting on Nationwide’s data, Lucy Pendleton, founder and director of independent estate agent James Pendleton, says: ’We’re back into negative territory and the annual growth rate has been broadly shrinking like a tyre with a slow puncture since the middle of last year, so no surprises that the trend has continued. The annual rate of growth has more than halved in a year, from 5.6 per cent 12 months ago.’

On a more positive note, she points out that the market is still outpacing the economy in general by a considerable margin. ‘Economic growth was running at only 0.3 per cent in the second quarter, so the housing market still has a solid lead,’ she adds.

Buyer are still keen to buy – at the right price

Rightmove reports that monthly asking prices were down by 1.2 per cent in September – a drop of £3,660 and the first monthly price fall at this time of the year since 2013.

It points out that this fall is exacerbated by a -2.9 per cent monthly drop in London house prices. Take London out of the equation, and the monthly drop would be just -0.5 per cent. It suggests that falling prices in the capital are down to a ‘readjustment’ in more expensive London boroughs.

Miles Shipside, Rightmove director and housing market analyst, says: ‘There were Autumn price bounces nationally in 2014, 2015 and 2016, but the south of the country has turned this month into a bit of a damp squib, whilst some northern regions are still showing marginal signs of upwards price pressure.

‘Estate agents are clearly advising many sellers that they have to lower their price expectations to fit in with buyers’ stretched financial resources, with that price compromise hopefully generating extra buyer interest.’

He concludes: ‘With competition among lenders to lend, increasing wages and the lowest level of unemployment since 1975, buyers are still keen to buy if the property is worth the money and well-presented. ‘If more sellers appreciate that sensible pricing is the best way forward, then this will help to maintain good levels of buyer activity despite the uncertain political outlook.’  

This is article was originally written by our sister publication Moneywise.

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