Property News

At the beginning on the year, the majority of property analysts predicted that the market would remain muted for most of 2018. So far, this forecast has been proven to be accurate and we've seen slight inclines and dips rather than the more dramatic peaks and troughs of recent years. According to the latest Nationwide index, this pattern persisted into April, with house prices in the UK rising by a modest 0.2 per cent. April is traditionally a strong month for the housing sector, of course, but this particular set of growth figures comes against a backdrop of mixed economic and political news. The jobs market, for example, is faring extremely well, but the country's GDP shrank in the first quarter of the year. Incomes are rising, but inflation remains stubbornly high, putting severe pressures on family finances. In this context, it was by no means certain that sold property prices would rise in April. That they did is encouraging. In this Nethouseprices feature, we look at the detail of the Nationwide report and evaluate the industry's reaction.

Nationwide HPI for April: the headlines

- UK property prices increased by 0.2 per cent in April, having fallen by the same amount in March.
- Prices are rising at 2.6 per cent on an annual basis. The figure was 2.1 per cent last month.
- The average cost of a home in the UK is now £213,000. It was £211,625 in March.

In his briefing to the latest index, Nationwide's Robert Gardner pointed out that, going forward, much depended on developments in the wider economy. The jobs market, he said, continues to go from strength to strength, but economic activity elsewhere is more subdued. Equally, there are persistent pressures on household finances.These factors might weigh down sold property prices in the coming months. In his view, overall growth in 2018 is likely to be limited to around 1 per cent.

Reaction

On balance, the industry seems to be rather underwhelmed by the figures, although the slight uptick is universally welcomed. Jeremy Leaf, a London-based expert, was quoted in the media as saying the small rise was more likely to be a function of the lack of supply rather than "a burst of springtime activity" and he didn't envisage much changing in the next few months. He conceded, nonetheless, that the upswing was more welcome than a fall and that his own business was showing signs of picking up, with house valuation and listing activity increasing.

Howard Archer of the EY Item Club appeared to take a similar tack, arguing that the conditions for the housing market are - and will continue to be - challenging. Squeezed household budgets, he said, were denting consumer confidence and putting people off major transactions like buying a new house. He also suggested that the spectre of a further hike in interest rates might be impacting the sector. 

Samuel Tombs of Pantheon Macroeconomics took up this theme, saying that even a minimal rise in the Bank of England base rate would have an adverse effect, since loan-to-income ratios are already at record highs. While he believes that such factors as the strong employment market would prevent a steep decline in property prices, he thinks the sector will be essentially flat for the balance of this year.

Elsewhere, Brian Murphy of the Mortgage Advice Bureau was quoted as saying that growth was admittedly incremental rather than dramatic but that it did demonstrate the underlying robustness of the market.

Nethouseprices view?

It's hard to take issue with the view of the experts. The Nationwide index for April doesn't carry particularly impressive news, but it needs to be put into context: as highlighted above, conditions are less than ideal, so any growth should be welcomed. There are two additional points warranting discussion, though. Firstly, we will learn very shortly whether the Bank of England is going to increase lending rates. If this does happen, the rise is likely to be just 0.25 per cent. The housing sector has been broadly flat since November's adjustment - the first in a decade - but not all economists are convinced that there is a real connection between the two developments. After all, property prices had already been moving at a sluggish pace before the bump in interest rates and, thanks to intense competition among lenders, the cost of borrowing is still low by historic standards. Other commentators disagree, believing that an environment where interest rates are rising - even in tiny increments - deters some house-hunters. If that view is correct and the Bank of England does indeed increase its base rate in May, we might see a further softening of the market.

Secondly, one of the explanations for rising sold house prices is that we simply have a shortage of homes. Indeed, many housing analysts believe that such growth as we have experienced in recent months is attributable solely to this chronic supply shortfall. Given that the government has announced a series of measures designed to boost the country's housing stock, an obvious question is: when will we start feeling the effects of this house-building programme? Not any time soon would appear to be the answer if a new set of statistics from the National House-Building Council is accurate. Housing starts declined by 14 per cent to 36,637 in the first quarter of this year. There are mitigating factors, of course, including the harsh winter, but the figures do underline how difficult it will be to meet government targets of 300,000 new homes per year and, in turn, how long it will take before increased volumes of housing filter through to property prices.

The Nationwide study is just one of a number of house price indices and it will be fascinating to see whether the upcoming Halifax and Office for National Statistics reports paint a similar picture. As readers will be aware, they seldom do match up on a monthly basis, causing critics to doubt their reliability. See, for example: https://www.mortgagestrategy.co.uk/news-analysis-numbers-dont-add/. Some of these concerns have their merits, of course. But we are inclined to be slightly less critical. As Britain's biggest mortgage lenders, Nationwide and Halifax process many thousands of transactions every month, meaning that their indices are valuable snapshots of the market. Both organisations also conduct some hugely important research into other areas of housing finance. Appended to its April index, for example, is Nationwide's report on the numbers of cash purchases of residential property. This is crucial material for property industry participants.

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