In its latest index, published last week, Nationwide found that house prices in the UK fell by 0.3 per cent in February and that annual growth stood at 2.2 per cent, down from 3.2 per cent in January. As disappointing as the figures were, the industry was reluctant to draw too many inferences from them, preferring to await the publication of the other major commercial index - that of Halifax, Britain's largest mortgage lender - before conceding that the market was showing definite signs of stalling. Well, the Halifax index for February is now available, and its findings, while not exclusively downbeat, certainly point to a cooling of the sector. In this Nethouseprices piece, we set out the salient features of the index, evaluate the expert response and ask whether the figures are really as alarming as some sections of the media are suggesting.
Halifax HPI for February 2018: the headlines
The following figures are based on the bank's own mortgage-lending transactions rather than on official Land Registry sold prices. As such, they are subject to some volatility and might eventually be revised. With this note of caution in mind, though, Halifax's main findings are that:
- House prices in the UK rose by 0.4 per cent in February, following declines in both December and January. Monthly figures are not generally regarded as being wholly reliable, but it is fascinating to see that Halifax and Nationwide should differ so strikingly on this measure.
- The average cost of a home fell by 0.7 per cent in the quarter from December to February. This represents the first quarterly decline in prices since May 2017.
- Property prices increased by 1.8 per cent in the year to February, down from 2.2 per cent the previous month. Halifax says that this is the lowest annualised rate of growth in almost five years.
- The average price of a house or apartment in the UK is now £224,353, down from the high of £226,408 reported back in November last year.
Halifax helpfully summarises the latest housing-related data from various government agencies and commercial organisations. The salient points are that:
- According to Bank of England statistics, mortgage approvals rose by a healthy 9.4 per cent month-on-month in January, to 67,478. Readers might recall that the figures for the final months of 2017 were fairly weak and, to the extent that mortgage approvals are indicators of sales, the uptick is highly encouraging.
- Her Majesty's Revenue and Customs says that 102,610 houses were sold in the UK in January, the highest level since April 2017. This finding underlines the point that, while prices might be growing at a relatively subdued pace, the market is still active.
- The Royal Institution of Chartered Surveyors (RICS) reports that new buyer enquiries fell for the tenth consecutive month and that new sales instructions have now fallen for 23 months in succession. This is, apparently, the worst sequence since the period 2007-2009, when the country was in the midst of the financial crisis.
Discussing his institution's latest index, Russell Galley, Managing Director of Halifax Community Bank, said that house prices in the UK remain "broadly flat." The jobs market is going from strength to strength and wages are finally starting to show commensurate growth, but consumer price inflation continues to put pressure on household finances, a factor which is weighing down growth in the housing sector. Nonetheless, says Mr Galley, the ongoing shortage of homes on the market and low mortgage interest rates will combine to support an upswing - however modest - in prices during the coming months.
Howard Archer, of the EY Item Club, reacted to the index by saying that conditions will be challenging for the industry this year. In his view, the inflation-driven squeeze on family finances will only ease slowly and consumer confidence will remain brittle, discouraging people from committing to major transactions like buying a new house. He also argues that the prospect of further rises in the Bank of England base rate might weigh on consumer sentiment and curtail activity. Mr Archer has consistently forecast minimal growth during 2018 and the latest Halifax index appears to have done nothing to shake his conviction.
Elsewhere, Samuel Tombs of Pantheon Macroeconomics, one of the analysts we frequently cite, contends that November's hike in interest rates has been a central factor in the cooling of the market. Accordingly, he expects prices to remain flat for the balance of 2018.
Jeremy Leaf, leading estate agent and former Chairman of RICS, said that he doesn't anticipate much changing unless there is a significant breakthrough in the Brexit negotiations.
The response wasn't universally negative, though. Brian Murphy of the Mortgage Advice Bureau, for example, pointed out that prices were in fact rising in line with the predictions of the majority of property experts. Therefore, he concludes, there is no real reason for alarm.
A number of the newspapers expressed concern about the Halifax index, presumably because they consider the quarterly and annual figures to be more reliable barometers of the direction of house prices in the UK than the monthly measure. To an extent, we share their view: the housing market clearly isn't expanding at anywhere near the rate we were experiencing as recently as 2016. Despite this unavoidable conclusion, though, we don't see the picture as being especially bleak. Why? Well, for three main reasons:
Firstly, some of the underlying metrics - volume of sales, for instance - are pretty robust, showing that houses are being sold, even if prices aren't rising at their former pace.
Secondly, the Halifax index merely provides a national snapshot. A more detailed investigation shows that prices are rising at an extremely healthy rate in such regional markets as Scotland, Wales, the Midlands, North West and South West.
And finally, the economic and political climate in this country is currently far from optimal. That property prices in the UK continue to rise even minimally against this backdrop demonstrates the astonishing resilience of the sector.
We hope readers have found this article useful. Coming soon: yet more Ministry of Housing, Communities and Local Government output, a new Nethouseprices guide to shared equity and shared ownership, and the ONS house price index for January.
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