As we approach the end of the year, media interest in the house price indices tends to fade somewhat, with some of the column inches usually designated to the property market being used to discuss retail sales and other vital concerns in the lead-up to Christmas. This is understandable for two reasons. Firstly, newspapers want to reflect their readers' current concerns - in this case, the upcoming festive season. Secondly, there is typically little drama around house prices at this stage of the year and the publication of a new house price index is unlikely to provide much copy for journalists. On the face of it, Nationwide's latest study is an object lesson in this principle, with the building society reporting slight growth in house prices in the UK and reiterating the economic factors underpinning the slow but steady upward trajectory of the market. In other words: move along, there's nothing to see here. Contained within the November index, though, are one or two interesting points about the probable impact of the abolition of Stamp Duty for first time buyers and some important observations about the supply of new homes. In this Nethouseprices feature, we summarise the key findings of the report.
Nationwide house price index for November 2017
Unlike the Office for National Statistics (ONS) index, which is based on official Land Registry sold prices, Nationwide prepares its monthly report using its own mortgage-lending data. In November, it found that:
- Annual house price growth remained stable at 2.5 per cent.
- Property prices rose by 0.1 per cent month-on-month, down from 0.2 per cent in October.
- Quarter-on-quarter growth was 0.6 per cent, down from 0.8 per cent in October.
- The average cost of a residential property in the UK is now £209,988.
Robert Gardner, Nationwide's Chief Economist, said in his briefing that the principal engines of growth were low mortgage interest rates, the healthy labour market and a lack of homes on the market. Readers will recall that he and other analysts have highlighted these issues for several consecutive months and it seems that they will continue to support prices going forward into the new year. This being said, general inflation and weak wage growth are putting pressure on family finances and eroding consumer confidence, especially around large commitments like house purchases. Mr Gardner didn't directly address consumer borrowing concerns in his statement, but some commentators have stressed that household debt is soaring and that banks and building societies are being urged to put a brake on excessive lending. No one is yet predicting "Credit Crunch 2: the Sequel" but even minor constraints on lending could affect consumer finances.
Asked for his reaction to the Nationwide house price index for November, Samuel Tombs, Chief Economist with Pantheon Macroeconomics, was inclined to attribute the loss of "upward momentum" in house prices in the UK to rising mortgage interest rates following the recent hike in the Bank of England base rate. He added that it might take another couple of months to fully evaluate the effect of the rates increase on the market, and suggested that there were indications that it had already had an impact.
Stamp Duty and UK property prices
Nationwide doesn't envisage that the abolition of Stamp Duty for first time buyers (FTBs) will make more than a modest difference to demand and prices. This is partly because, in many parts of the country, FTBs already pay little or no Stamp Duty because the homes they tend to buy usually cost less than the £125,000 threshold for the tax. There are, however, significant regional disparities. Consider, for example:
- Before the change, 100 per cent of FTBs were liable to pay Stamp Duty.
- The average Stamp Duty paid by FTBs was £13,902.
- After the change, 87 per cent of FTBs will be liable to pay Stamp Duty.
- The average Stamp Duty payable by FTBs will be £9,778.
2. North West of England
- Before the change, 62 per cent of FTBs were liable to pay Stamp Duty.
- The average Stamp Duty paid by FTBs was £1038.
- After the change, 4 per cent of FTBs will be liable to pay Stamp Duty.
- The average Stamp Duty payable by FTBs will be £234.
3. North East of England
- Before the change, 47 per cent of FTBs were liable to pay Stamp Duty.
- The average Stamp Duty paid by FTBs was £639.
- After the change, 2 per cent of FTBs will be liable to pay Stamp Duty.
- The average Stamp Duty payable by FTBs will be £100.
Another crucial point is that Scotland has its own arrangements for Stamp Duty and it's not yet clear whether that country will follow the Westminster approach to FTBs. Similarly, while the new rules do apply in Wales, the Principality will take charge of its own Stamp Duty affairs next year and it might decide on an entirely different model. These variables make it difficult to make any firm predictions about the likely overall effect of the changes on house prices. The Office for Budget Responsibility has nonetheless projected that the cost of residential property will rise by some 0.3 per cent as a result of the abolition of Stamp Duty for FTBs, with most of the upward movement taking place in 2018.
The shortage of homes has been the cause of many a ministerial headache during the past few years and, despite a raft of measures designed to ease the problem, there has - until now - been no appreciable increase in the supply of new houses. In his briefing to the November index, though, Nationwide's Robert Gardner welcomes the government's concentration on housing in the Budget and points out that, while much more work is needed, there are encouraging signs that progress is finally being made. Construction of new residential properties is still 13 per cent lower than in 2007, he says. But, if you factor into the equation office blocks and other business premises that have been repurposed for housing, the creation of new homes is just 3 per cent lower than in 2007. Mr Gardner warns that the effect of this has been felt most acutely in London and the South East and that the rate of redevelopment of these premises might slow because the easy conversions - or low hanging fruit - have already been processed. Remediation of spaces for housing is nonetheless to be welcomed.
We hope you have found this Nethouseprices feature useful and that we will see you again soon for our updates on house prices in the UK, the private rental sector and housing policy.
You can also sign up to our newsletter and join Nethouseprice’s community of over 190,000 members who get regular property tips, relevant offers and news, click here http://nethouseprices.com/auth/user-register