There's little question that house prices in the UK have proven significantly more robust after the Brexit vote than many commentators had anticipated. Certainly, prices aren't rising at the feverish pace experienced across much of the country in the past few years, but, outside of London, they haven't fallen either, and we have seen modest but sustained growth in most countries and regions of the UK. Readers will recall that this ongoing trend was confirmed by the latest Nationwide house price index, which found that the cost of residential property rose by 2.0 per cent in the year to September. Halifax has now published its own figures for last month, and they too point broadly to steady, if unspectacular, growth.
The key statistics contained within the pages of the report are as follows:
- House prices in the UK rose by an average of 0.4 per cent in the three months to September.
- Following an increase of 1.5 per cent in August, prices grew by 0.8 per cent in September.
- The annual rate of house price inflation is 4.0 per cent. The figure for August was 2.6 per cent.
- The average home in the UK now costs some £225,109. This is, in fact, the highest average price ever recorded.
- The total volume of sales remains flat, but still exceeded 100,000.
- Mortgage approvals fell by 2.7 per cent between July and August, to 66,580.
- The Royal Institution of Chartered Surveyors (RICS) reports that there has been a small uptick in new sales instructions, but that they remain at near all-time low levels.
As ever with the commercial house price indices, there is an important caveat, and that is that the organisations in question depend essentially on their own lending data when collating their respective studies, so they need to be viewed with a degree of caution. With this qualification in mind, though, what was the expert reaction to the Halifax publication for September?
Russell Galley, Managing Director of Halifax Community Bank, said that house prices are at record highs, with the market being supported by two factors:
1) A chronic shortage of houses and flats for sale
2) A healthy jobs market, with unemployment being at close to its lowest recorded level.
Are present rates of growth sustainable? Well, without implying that he anticipates much in the way of a slowdown, Mr Galley did identify a couple of issues which could impact the sector in the coming months. Firstly, rising general price inflation coupled with stagnant wage growth will put pressure on consumer finances, which in turn might weigh down the housing market. Secondly, there are ever clearer signs that the Bank of England's Monetary Policy Committee will raise interest rates as early as November 2017. While Halifax doesn't expect this to make a huge difference, at least initially, it might have a slight effect on prices.
Samuel Tombs of Pantheon Macroeconomics, a noted property economist, cautioned against "getting carried away" with the Halifax figures. He said that they were difficult to reconcile with other surveys which have typically pointed to a more subdued picture, adding that the bank's index was subject to more marked volatility than the other leading indices. He argued that demand remains comparatively weak and that there is room for real wages to fall in the next six months. Furthermore, he stressed, interest rates are likely to rise. In an upcoming Nethouseprices article, we will examine recent movements in the mortgage-lending market which tend to suggest that borrowing costs are already rising - a point which seems to underline Mr Tombs's contention.
Elsewhere, Jeremy Leaf, a London-based housing expert, seemed to be largely in agreement with his counterpart at Pantheon. He said that he feels the Halifax statistics do, to an extent, show that the market is holding up reasonably well and confounding the "doom mongers." He nonetheless argues that the figures really aren't anything to get too excited about and they don't reveal much of an autumn bounce. Overall, though, the news is welcome amidst the prevailing economic uncertainty.
In contrast, another analyst, Lucy Pendleton, was inclined to attribute the price increases to the so-called "back-to-school bounce" and concluded that, following this seasonal distortion, the market was just as likely to soften in the next couple of months. She also pointed out that, in London, houses were selling quickly where sellers were realistic about pricing and reducing the asking price for their properties.
Other commentators highlighted the point that London's woes are not being reflected in other parts of the UK and the average figures contained in the Halifax index are therefore misleading. Investors, for example, are abandoning the capital, and prices in the other regions are the main beneficiaries. Where property is cheaper and there are fewer affordability pressures, there is ample space for a hike in the cost of housing. In other words, the gap between London and the South East and the rest of Britain is starting to narrow. This observation is borne out by most of the house price indices, with the East Midlands and East of England dramatically outperforming their neighbours to the south. See, for example,
Brexit continues to dominate certain areas of debate, with the emerging consensus appearing to be that the short-term impact of the vote was overstated, but that the industry might have underestimated the longer term effect of the UK leaving the EU. Much depends, of course, on the speed and direction of the country's exit negotiations. Continued uncertainty has the potential to drag down house prices during the balance of this year and in 2018, so market participants will be hoping for clarity sooner rather than later.
The team here at Nethouseprices will continue to monitor this story and will update readers a on major developments. Visit us again soon for further coverage of house prices in the UK, the private rental sector and the housing policy issues affecting you, your family and your investments.
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