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House prices in the UK: Halifax weighs in

Regular readers of these Nethouseprices columns will recall that Nationwide’s recently published housing figures for March were somewhat sobering. To recap, the building society found that house prices in the UK fell by 0.3 per cent in March, so that the average cost of a residential property is now some £207,308. When reporting these statistics, we highlighted the point that other bodies might conceivably produce rather different findings, depending on their methodologies for assessing price growth. One of the organisations whose monthly study is most widely-anticipated is Halifax, another of Britain's major mortgage lenders. Issued in early April, the Halifax house price index is almost as disconcerting as that of its competitor financial institution.

Halifax on prices

The headline news was that Halifax found that prices actually rose by 3.8 per cent in the year to March. This is, at least on the face of it, a striking contrast with the Nationwide figure. However, once you delve a little deeper into the price index, there are one or two troubling patterns developing. The rate of growth, for example, is the lowest recorded since the Spring of 2013. Similarly, the figure is down from 5.1 per cent growth in the year to February. In fact, the rate of house price inflation has halved in the past twelve months. To put this in some sort of context, the rate of general inflation is currently rising and is expected by economists to reach upwards of 2.7 per cent by the end of this year. According to Nationwide, the average price of a house or flat in the UK is now £219,755.


Martin Ellis, housing economist with Halifax, said that he was inclined to attribute the slowdown to issues around affordability. In other words, he argued, prices have risen to a point where, with sluggish wage growth and inflation eroding incomes, they are no longer affordable and so demand has consequently been curtailed. This theme was taken up by the main body of property commentators, who seem to feel that the UK is approaching a housing affordability threshold.

The specific factor highlighted by analysts was the triggering of Article 50 and the uncertainty that has been unleashed on the wider economy by Brexit. Businesses and consumers alike are proceeding with caution, and growth in all sectors is likely to be subdued. Martin Gerrard of the National Association of Estate Agents said that the Halifax index came as no real surprise to him. He had anticipated the formal start of the process of Britain leaving the EU to cause ripples in the housing market.

Is a downturn inevitable now?

Certainly, the market is slowing to the extent that we can be said to experiencing a downturn, and this is likely to persist in the coming months. We cannot emphasise strongly enough, though, that no one at this stage is predicting a nineties-type house price crash. As Mr Ellis, and the majority of his counterparts at other banks and building societies, says, there is an ongoing shortage of houses coming onto the market and this scarcity will support prices until such time as significant numbers of houses are not only built, but listed for sale on the market. His comment about the lack of supply of houses has been borne out by various statistics, in particular, the Royal Institution of Chartered Surveyors (RICS) finding that the volume of new listings fell for the twelfth consecutive month in February.

Whilst there are well documented plans afoot to increase the supply of homes, this is, of necessity, a time-consuming project, and it's highly unlikely that the market will be flooded by new homes any time in the near future. So, prices aren't going to spiral dramatically downwards during the remainder of this year. Rather, experts forecast modest growth of between 1-4 per cent in 2017.

Longer term

It's notoriously difficult to make long term predictions about house prices in the UK. There are so many external factors to consider. A global recession like that experienced after the financial crisis, by way of example, is practically impossible to forecast, but when it occurs, it has a dramatic impact on the cost of houses.

Similarly, in Britain, much depends on whether the Government's ambitious house building programme comes to fruition. If by the end of this Parliament, houses are being constructed in their hundreds of thousands up and down the country, then prices could start to fall appreciably. If the various schemes are abandoned or are executed slowly, then there is every reason to assume that house prices will grow as quickly as ever once the Brexit uncertainty has been lifted.

This is the view taken by the prominent economics consultancy, the Centre for Economics and Business Research (Cebr), which recently announced that it expects the cost of an average house in the UK to rise by an astonishing £52,000 or 25 per cent by 2021. As well as the chronic housing shortage, Cebr cites a weak Sterling as being a key driver of price inflation at the top end of the market. Overseas investors are likely to be lured back to the British luxury housing sector by a beneficial exchange rate. This news is likely to hearten participants in the central London prime market, which has recorded at best minimal growth and at worst deflation during the past 18 or so months.

The next set of figures to watch out for is the Office for National Statistics (ONS) house price index. As Nethouseprices readers will remember, the reliability and accuracy of these statistics have been the subject of controversy in the past few weeks, but they remain the most comprehensive and impartial house price studies available. It's to be hoped they lend further clarity to the picture.

Visit us again soon for updates on this story and for all your property market news, as well as for commentary and analysis of the housing issues affecting you, your family and your investments.

Source: Nethouseprices

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