Another week brings another layer of confusion around the direction of house prices in the UK. The most recent institution to cloud the already murky picture is Halifax, whose latest index finds that the average cost of a home fell by 0.6 per cent in January. Nethouseprices readers will recall that rival lender, Nationwide, said that property prices across the country actually rose by 0.6 per cent in the same month. It isn't especially unusual, of course, for the two indices to contradict each other to an extent. Since they base their monthly studies on their own mortgage approval data, it is virtually inevitable that there should be at least some disparity between their respective findings. What is perhaps more intriguing is that Halifax should be the organisation reporting a decline in the market, since, towards the end of last year, the bank consistently published faster house price growth than Nationwide. In this article, we set out the Halifax headlines, evaluate the response, then discuss an interesting suggestion for why the gap between the competitors' indices is so marked right now.
Halifax HPI for January: the headlines
- The average price of a house grew by 2.2 per cent on an annual basis, down from the 2.7 per cent growth recorded in December.
- Property prices fell by 0.6 per cent in January. The reported decline in December, though, was 0.8 percent.
- On a quarterly basis, there was no change recorded.
- The average cost of a home in the UK was £223,285 in January. As a point of reference, the highest average price - recorded by Halifax in November 2017 - was £226,408.
- As we discussed in a previous Nethouseprices column, the Bank of England says that the number of mortgages approved in December fell to 61,039, the lowest level seen since January 2015.
- Halifax cites the Royal Institution of Chartered Surveyors survey which found that, for the 23rd consecutive month, new instructions for sale declined in December. New purchaser enquiries also fell slightly.
The reaction to the January house price index was somewhat downbeat, with most of the commentators whose opinions were sought taking the view that growth would be circumscribed this year. There is nonetheless a fairly clear consensus that there is little danger of a major drop in prices. Russell Galley, Managing Director of Halifax Community Bank, for example, said that pressures on household incomes were responsible for the weaker figures, but that interest rates, which are extremely low by historic standards, and a limited supply of houses for sale would support prices going forward. He added that it was still too early to say whether the abolition of Stamp Duty for first time buyers was affecting sales to any appreciable degree.
Elsewhere, Brexit yet again raised its head. By way of example, Jonathan Samuels, Chief Executive of Octane Capital, was quoted in the media as having said that the uncertainty surrounding the Brexit negotiations would lead to some "see-sawing" of house prices in the UK during 2018. However, the underlying conditions - the combination of high levels of employment, low mortgage rates and the housing supply deficit - effectively eliminated the possibility of a major crash.
Hansen Lu of Capital Economics, meanwhile, argued that two factors would anchor down price growth. Firstly, wage growth is being outpaced by general inflation, meaning that many households are struggling financially. Secondly, there are serious affordability constraints in many parts of the country and these leave little space for property prices to rise at the pace seen in recent times.
Howard Archer, an economist with the EY Item Club, whose views on the housing market are frequently solicited, said that he maintained that the cost of residential property would rise by a maximum of two per cent in 2018, with faltering consumer confidence keeping a "lid" on growth.
Taking up a familiar theme, Samuel Tombs, of Pantheon Macroeconomics, seemed to argue that the index was something of an indictment of the decision made by the Bank of England (the Bank) to raise interest rates back in November. He said that he expected the figures to deter the Bank from hiking rates any further in the coming months. The next meeting of the Bank's Monetary Policy Committee takes place on Thursday 8 February and, if the main body of economists are correct, it is unlikely to raise the base rate. Interestingly, however, many analysts say that they believe we might, in fact, see a further rise as early as May and that yet another rise before the end of the year cannot be ruled out.
Emphasising one of our refrains in these Nethouseprices columns, Brian Murphy, Head of Lending at Mortgage Advice Bureau, said that whilst the January figures might seem alarming, it was crucial to remember that there are many "micro" housing markets in the UK and that some of these would perform better than others.
An obvious question is: why do the Nationwide and Halifax indices so frequently differ? In truth, no one really knows for sure. Discussing the Halifax's latest product, however, The Times said that anecdotal evidence suggested that the figures vary so strikingly because Nationwide's business is concentrated in the more southerly parts of the UK, while Halifax is based principally in the North. We can't really comment on this contention, but the gaps between the two lenders' reports is one of the main reasons why we always say that it's unwise to draw any definitive inferences from either index in isolation. Read together, the respective studies essentially confirm that price growth - on the more accurate annual and quarterly measures - has slowed, but is far from stalling completely.
Coming soon: the Office for National Statistics house price index for December, furnishing your home on a budget, and yet more policy news. Visit the team at Nethouseprices again soon for these features and our up-to-date coverage of the UK housing market. While you are here, please do feel free to try out our other online services, including our free instant house valuation tool which now covers the whole of mainland Britain.
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