Property News

Readers of these Nethouseprices columns will know that, in recent weeks, there have been signs that house prices in the UK are starting to falter. The latest index from Nationwide, for instance, revealed a decline of 0.2 per cent in house prices in May. Halifax has, however, thrown market analysts into some confusion by announcing that its own figures suggest that prices rose slightly in May, although annual growth was just 3.3 per cent, the slowest pace recorded in four years and down from 10 per cent in May 2016. Elsewhere, there are indications that the rental market is in something of a decline. In this piece, we round up the latest housing market news.

Halifax house price index

Like its competitor, Nationwide, Halifax is one of Britain's biggest mortgage lenders, and its house price index is eagerly awaited across the property industry. That monthly findings should be different from those published by Nationwide is not entirely surprising, because both institutions base their reports on their own lending data and these can reflect a certain volatility. With this in mind, what was the Halifax headline finding?

Well, the media principally picked up on the point that average house prices rose by 0.4 per cent in May. As interesting as this statistic is, in the context of other agencies recording a decline last month, it is essentially just a snapshot of the Halifax's own business activity. Much more intriguing, as highlighted above, is the annualised growth figure of 3.3 per cent, which is actually the most subdued rate of expansion in four years, and around a third of the growth reported in May last year. The average cost of a house or flat in the UK now stands at some £220,7016.

Reaction

Reaction to the Halifax index varied. Appearing on the eve of the general election, the study was, in many ways, grist to the political mill, with newspapers using its findings to underscore wider viewpoints about the economy and which party is best equipped to protect and develop it. Away from the political commentators, though, the observations were significantly more nuanced.

The consensus among housing economists seems to be that the monthly Halifax finding is probably anomalous and merely reflects some market volatility, while the annualised figure, when examined ialongside yearly statistics reported by other organisations, is a fairly reliable barometer of the direction of house prices. In other words, they confirm that the sector is softening.

The cooling of the housing market continues to be attributed largely to the triple cocktail of the ongoing uncertainty around Britain's post-Brexit future, sluggish wage growth and, for some analysts, the election. The latter factor is, of course, subject to a great deal of argument because the belief that elections impact the housing market is far from universally held by the country's property experts.

Howard Archer, chief economic adviser to the EY ITEM Club, said, for example, that he felt the key issue was disappointing wage growth, which means that price inflation is putting pressure on household incomes and consumer "purchasing power." This will weigh down house prices.

This being said, none of the property gurus seems to be forecasting a full-scale crash: low interest rates, a buoyant jobs market and the perennial shortage of homes for sale will ensure that prices don't fall too dramatically. There is also every sign that a majority government will be returned on election day which will, at the very least, provide some certainty and stability for the next five years.

Rental market

The challenges currently facing landlords have been well-documented, and there is yet more bad news: rental prices are apparently falling. HomeLet has issued research showing that rents fell in May for the first time in seven years, with London displaying the most marked decline.

The central point is that tenancies starting in May 2017 were 0.5 per cent cheaper than those starting in the same month last year, the first reported price drop in seven years. The average rental price of a new tenancy is now £901 per calendar month. In London, however, the rate of decline is much higher, at three per cent. The average monthly rent in London was £1572 this time last year and the current figure is just £1502. Other regions found to have experienced a drop in rents of between 0.6 per cent and 2.3 per cent included the North East and South East of England, Scotland and Yorkshire and the Humber region.

Many of the issues dragging down house sales are also affecting the private rental sector, but there are other factors at play. There is a glut of new lets on the market, as a result of landlords rushing to boost their portfolios before the introduction of the new Stamp Duty surcharge on investment properties, meaning that prospective tenants can pick, choose and negotiate rents. Similarly, there is a sense that rental prices in some parts of the country have reached an affordability threshold and that landlords have little space or "wiggle room" to raise their prices.

These latest figures throw into sharp relief the scale of the problem facing landlords. On the one hand, they are encountering unprecedented expenses as a consequence of the controversial tax changes and the higher cost of mortgage borrowing occasioned by modifications to the prudential lending regulations applying to landlords. On the other hand, though, the state of the rental market is such that they can't realistically raise rents to recover some of their financial losses. Martin Totty of HomeLet, discussing his company's study, emphasised this difficulty. He said that balancing rent affordability with new costs was proving a tough task for landlords. It is to be hoped, he added, that this won't lead to a major fall in the volume of private rental properties, since supply constraints would adversely affect tenants.

The team here at Nethouseprices will follow these stories as they develop, and will keep you updated. Visit us again soon for the latest news on house prices in the UK, the rental market and the wider housing sector, as well as for commentary and analysis of the issues affecting you, your family and your investments.

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