Reversing previous falls
House prices were up 0.3% on a monthly basis according to the latest Nationwide House Price Index. This reverses the previous falls of 0.2% in May and 0.1% in June.
The annual house price growth was also up 2.9% in July, which broadly similar to the 3.1% growth recorded in June.

Average price data
Since its introduction during in the first quarter of 1995, the Nationwide’s updated mix adjusted House Price Methodology has been used to produce the indices and average prices. The processed data is drawn from Nationwide’s house purchase mortgage lending taken at the post survey approvals stage.

Nationwide’s Chief Economist, Robert Gardner said:

“The annual pace of house price growth remained broadly stable in July at 2.9%, only a touch lower than the 3.1% recorded in June.“On the surface, this appears at odds with recent signs of cooling in the housing market. The number of housing transactions dipped to their lowest level for eight months in June, while in the same month the number of mortgages approved for house purchase moderated to a nine-month low of c.65,000.

“But a lack of homes on the market appears to be providing support, with annual house price growth remaining only just outside the 3-6% range, that has been prevailing for most of the past two years. “This pattern looks set to be maintained in the near term. Survey data point to relatively sluggish levels of new buyer enquiries, but at the same time surveyors report that relatively few properties are coming onto the market (and at a time when the number of homes on estate agents’ books is already close to thirty year lows – as shown in the chart below).

“Ultimately, housing market developments will depend on wider economic performance. The UK economy slowed noticeably in the first half of the year and there has been little to suggest a significant departure from recent trends in the quarters ahead. “While employment growth has remained relatively robust, household budgets are coming under pressure as wage growth is failing to keep up with the rising cost of living.

“This suggests that housing market activity is likely to remain subdued, with the balance in the market shifting a little further towards buyers in the quarters ahead. Nevertheless, constrained supply is likely to continue to provide support for house prices and, as a result, we continue to expect prices to rise by c.2% over 2017 as a whole – only modestly lower than the levels recorded in recent months.”

New trade association
Formed on 1 July 2017, UK Finance is a new trade association and represents the finance and banking industry operating in the UK. Representing over 300 firms in the UK providing credit, banking, markets and payment-related services. This new organisation brings together activities previously carried out by the British Bankers’ Association, the Asset Based Finance Association, the Council of Mortgage Lenders, Payments UK, UK Cards Association and the Financial Fraud Action UK.

Back to back
June 2017’s figures represents a rise of 3% for the same time last year. Adding this figure to the second quarter of 2017 for gross mortgage lending gives an estimated figure of £60.3 billion. Back to back with second quarter of last year, this represents a 6% increase on the £57.1 billion lent in 2016.

UK Finance Senior Economist Mohammad Jamei commenting on market conditions said:

“A period of belt-tightening now seems to be underway as inflation begins to erode consumer spending power, and consumer confidence weakens. Given that the economy and housing market are closely linked, this has contributed to the activity plateau since the start of the year.

Looking ahead, housing market activity is likely to reflect economic conditions – a deterioration would likely dampen first-time buyer numbers and homeowners remortgaging – the factors that have supported lending recently.”

Smallest gap on record
Nationwide House Price Index for June records growth in annual house prices to 3.1%.
The reduction in the gap in house price growth between the strongest and weakest performing regions produces the smallest gap on record.

Robert Gardner, Nationwide’s Chief Economist said:
“UK house prices rebounded in June, with prices rising by 1.1% during the month, erasing the decline recorded over the previous three months. However, monthly growth rates can
be volatile, even after accounting for seasonal effects. “The annual rate of house price growth, which gives a better sense of the underlying trend, continues to point to modest price gains. Annual house price growth edged up to 3.1% from 2.1% in May. In effect, after two sluggish months, annual price growth has returned to the 3-6% range that had been prevailing since early 2015.

Shift in price trends
“There has been a shift in regional house price trends. Price growth in the South of England has moderated, converging with the rates prevailing in the rest of the country. In Q2 the
gap between the strongest performing region (East Anglia, which saw 5% annual growth) and the weakest (the North, with 1% growth) was the smallest on record, based on data going back to 1974. Nevertheless, when viewed in levels, the price gap between regions remains extremely wide. “London saw a particularly marked slowdown, with annual price growth moderating to just 1.2% – the second slowest pace of the 13 UK regions and the weakest pace of growth in the capital since 2012.

Softening of new buyer enquiries
“The emerging squeeze on household incomes appears to be exerting a drag on housing market activity in recent months. The number of mortgages approved for house purchase has slowed a little in recent months and surveyors report that new buyer enquiries have softened. “At this point it is unclear whether the increase in house price growth in June reflects strengthening demand conditions on the back of healthy gains in employment and continued low mortgage rates, or whether the lack of homes on the market is the more important factor. While survey data suggests that new buyer enquiries have softened, it also indicates that this has been matched by a decline in new instructions. Indeed, the number of properties on estate agents’ books remains close to all-time lows.

Housing market trends
“Given the ongoing uncertainties around the UK’s future trading arrangements, the economic outlook remains unusually uncertain, and housing market trends will depend crucially on developments in the wider economy. “Nevertheless, in our view, household spending is likely to
slow in the quarters ahead, along with the wider economy, as rising inflation squeezes household budgets. This, together with ongoing housing affordability pressures in key parts of
the country, is likely to exert a drag on housing market activity and house price growth in the quarters ahead. “However, the subdued level of building activity and the shortage of properties on the market are likely to provide support for prices. As a result, we continue to believe that a
small increase in house prices of around 2% is likely over the course of 2017 as a whole.”

Comparing prices to their peaks in 2007
The convergence in regional growth rates may be impressive, but price levels still show significant disparities. This is prevalent when comparing current prices to their peaks in 2007. Prices in London are circa 55% above 2007 levels, but those in the North West, Yorkshire & Humberside and North are still lower than their 2007 peaks.

Snap General Election
In March there were 397 house-hunters registered per estate agent branch, down from 425 in January and February, but this figure dropped four per cent to 381 in April. The snap General Election has started to take effect triggering uncertainty as buyers put their plans on hold until the result is clear.

Brexit uncertainty
The number of house-hunters searching for properties was 17 per cent lower at just 325 per member branch last April amid Brexit uncertainty.

EU referendum
In March there were 39 properties available to buy per branch but in April this figure dropped by eight per cent to just 36 per branch
The lowest supply of properties was April 2016 when agents had just 35 properties to market, as sellers held off until after the EU referendum.

Sales to first time buyers
The proportion of sales agreed per branch made to first time buyers stayed the same at 25 per cent in April.
The number fell from 10 in March to eight in April, while The rate of sales agreed above asking price rose to seven per cent in April, from five per cent in March. In line with this, the number of properties which were sold for less than the asking price dropped three percentage points from 75 per cent in March to 72 per cent in April.

Political uncertainty
Chief Executive, NAEA Propertymark, Mark Hayward, said:
“Periods of political uncertainty tend to halt activity in the housing market, and this is exactly what we’re seeing this month. All of the main political parties have outlined significant housing promises in their manifestos and we’d hope to see these policies rolled out in the new Government’s first six to 12 months in Parliament. Buyers and sellers alike are recognising this and adopting a ‘wait and see’ strategy to decipher how or if the value of their existing or future homes will be affected.

However, despite the fact that increasing housing stock is playing a part in the Election campaigning, more often than not we find these pledges are unachievable and turn out to be empty promises. It’s therefore important that the market doesn’t totally stall as this could trigger an unintended domino effect, which we could still feel the effect of years later before supply increases. A business as usual approach will ensure house-hunters are met with a healthy supply of properties to view, and sellers get a fair price and a good buyer.”

Taking off again in 2019

For the immediate future, the low number of transactions will be holding house price inflation down, creating the expectation that house price growth will remain subdued at 4.1% into 2018 before taking off again in 2019.

The factors currently taking the steam out of the market are primarily due to government regulation, which includes the rise in stamp duty on second homes and the changes in buy-to-let mortgage tax relief.

Real income growth is being eroded by higher inflation, as the effects of the vote to leave the European Union are now being felt by households. The biggest downside risk to the UK housing market is a slowdown in consumer spending and a potential blow to consumer confidence.

Lower interest rates

Activity in the mortgage market has been sustained by the accommodative policy stance of the Bank of England which lowered interest rates by 25 basis points in August last year, resulting in lower borrowing costs.

UK house prices will growing by just 4.4% in 2017, which is the slowest rate since 2013, according to new forecasts by leading economics consultancy Cebr – the Centre for Economics and Business Research. Being part of the consultancy’s Housing Prospects publication, this forecast, sees growth at below 5% for the next two years, after which activity in the housing market is expected to pick up again.

A leading indicator for property transactions, mortgage approval numbers, have recovered from their mid-2016 low and remain on a stable level of close to, but just under 70,000 per month. Compared to the historical average, while this is a low figure, it is near the post-crisis high of 74,000 seen in early 2014.

Foreign demand
With the continuing shortage of suitable housing exerting pressure on property prices – more than 40% of local planning authorities do not know how to meet local housing demand over the next ten years according to the government’s housing white paper. Due to the low value of sterling, those at the higher end of the market, who are looking to sell can hope to benefit from a pick-up in foreign demand.  

Reduction in private buy-to-let landlords

Kay Daniel Neufeld, Economist at the Centre for Economics and Business Research, commented:
“Additionally, the government’s changes to the buy-to-let sector are about to swing into high gear as private BTL investors will no longer be able to fully deduct mortgage interest payments from their tax bill. Starting next month, the government mandates that only 75% of taxes on mortgage interest payments can be deducted at the full rate of 40% while the remaining 25% will be deducted at a lower rate of 20%. Over the coming years, the tax system further reduces the share of pre-tax profits that can be deducted at the higher rate until in 2020 all pre-tax profits can only be deducted at a rate of 20%, essentially shifting the tax base from profits to rental income. This means that for the higher rate paying landlord the applicable tax deduction shrinks by 50% resulting in substantially lower net profits. Cebr expects this shift in the tax regime to significantly reduce the number of private buy-to-let landlords in the market.”

Leaving the European Union

Impacting on consumers’ disposable incomes will be a combination of rising inflation and stagnating wage growth, which will lead to a halt in real income growth. This downside will put a slight dampener on housing demand in 2017 and 2018. The property market is still reeling from additional taxes, which the previous government implemented at a time when they were not expecting that the UK would find itself preparing to leave the European Union.

£1.3 trillion
This may sound impressive, yet it’s still 8% lower than January’s lending total of £19.8 billion. Although, it’s a I close match when comparing to the same time last year as February 2016 saw £18.1 billion in total lent. To place these figures into further context, there are over 11.1 million mortgages in the UK, with loans worth over £1.3 trillion.

Supply demand imbalance
The Council of Mortgage Lenders senior economist, Mohammad Jamei, commented:
“Mortgage lending is holding up well, but under the surface buyers face mixed fortunes. First-time buyers and customers who are remortgaging are driving total lending, while home movers and buy-to-let remain weak.

The weakness in home movers means few properties are coming onto the market for sale, which is aggravating a supply demand imbalance that has characterised the market since late 2013. This looks set to continue at least over the next few months, posing an obstacle for would-be borrowers.”

Direct impact
This January the number of properties available to buy was the lowest since July 2016.

Increasing the number of buyers for each property has a direct impact on the number of properties that sell for more than the original asking price.  In January 2017, more than one in 20 properties (seven per cent) sold for more.

Prospective buyers
The NAEA Propertymark reports that in January the average number of prospective buyers registered per member branch was 425. This represents a 10 per cent rise from December 2016, when on average, estate agents registered 386.

Chasing each property
In December, 41 properties were available to buy on estate agents’ books. In January this number dropped to 38, the lowest recorded since July 2016. The decrease in properties and increase in house hunters means there is an average of 11 buyers chasing each property.

Branch level
First time buyers in January accounted for three in ten (30 per cent) of sales. This was a slight decrease from December, when the group when made up to 32 per cent of all sales. The number of sales agreed at branch level increased from six in December to eight in the first month of 2017.

Heightened interest
NAEA Propertymark Chief Executive, Mark Hayward said:

“January saw a surge in buyers looking to kick off the New Year with a new home – but competition is rife with an average of 11 buyers chasing each property. The increase in the number of properties selling for more than asking price in January could be a result of heightened interest and the fact there is simply not enough housing to meet demand. When the Government issued their Housing White Paper at the start of February we stated how important it was for the industry to put forward robust solutions to really make a difference and it’s vital that building more affordable housing is at the very top of their agenda.”

The most expensive boroughs
Westminster and Kensington & Chelsea remain the most expensive boroughs. The capital’s more affordable boroughs also record strong growth with London house prices now nearly 12 times average earnings.The steepest growth in house prices in the capital over the past 20 years have been recorded in the North East London Borough of Hackney. Private housing stock in London is now worth £1.27 trillion according to new research by Lloyds Bank.

Shooting up the list by 16 places
Shooting up the list of house price increases for London boroughs, by 16 places, from 28th in 1996 to 12th in 2016, is Hackney. The average house price in Hackney has increased by 702% to £606,269 in 2016, from £75,569 in 1996, an increase of £530,700. This compares to the average increase of almost 450% for London and 290% in England and Wales over the same period.

The next largest increase in average prices over the past 20 years are homes in Westminster, which have seen a rise from £190,438 (1996) to £1,424,388 (2016) – an increase of 648% – followed by Southwark with an increase of 626%.

The report also reveals that prices in London’s more affordable boroughs, have also recorded strong price growth. Moving to one of the top five performing areas are Waltham Forest (617%) and Newham (612%), who were among the six least expensive boroughs in 1996. Whats boosted house prices in these areas is the Olympic regeneration programme and improved travel links via the Jubilee Line extension (1999) and previously the Dockland Light Railway (1987).

Price gap widens across England and Wales
The gap in average house prices between London and the average for England and Wales, over the past 20 years, has widened from a difference of £33,834 (or 47%) in 1996 to £299,631 (or 107%) in 2016. London’s ‘Prime’ boroughs – City of Westminster, Kensington & Chelsea, and the City of London, having pulled even further apart. Prices are now 5.72 times the England and Wales average. This compares to 3.34 times in 1996.

Also seeing a surge is the total value of private housing stock in London. In 1996 it was £201.8 billion, rising (529%) in 2016 to £1.27 trillion, an increase of nearly six and a half fold.

Boom years
Lloyds Bank Mortgage Director, Andrew Mason, commented: “The last 20 years have seen substantial growth in house prices in London, especially in the most affluent areas of the City. The boom years between 1996 and 2008 saw the gap widening between house prices at the top end of the market and those in London’s inner and outer boroughs, creating two distinct markets1 – ‘Prime’ and ‘Mainstream’.

“However, whilst those boroughs at the top end have pulled away considerably from the rest of London and the country in terms of house prices, improved transport links to the city from the outer boroughs and the 2012 Olympic Games has meant that the boroughs directly benefitting from these have seen house price growth outpace the Prime areas in recent years.”

The best performers
20 boroughs have seen average house prices increase by over £400,000 between 1996 and 2016, the largest increase in monetary value has been seen in Kensington and Chelsea, where the average house price has grown from £297,768 to £1,857,287 – an increase of £1,559,518 (524%) and equivalent of £6,498 per month. Westminster is the next best performer, where the average value has grown by £1,233,949, followed by Camden (£887,658). Over the past 20 years these three boroughs, along with Fulham and Hammersmith have consistently been London’s five most expensive areas.

In 1996, average house prices were under £100,000 across nearly two thirds (64%) of London’s boroughs – fast forward 20 years and average prices are now more than £500,000 for over half (58%).

Compared to 1996, the ten most expensive places to live in London remain largely unchanged. The key exceptions are Southwark, which has moved up ten places to ninth spot and Haringey which moved up two places to tenth. Dropping out of the top ten are Barnet and Kingston-upon-Thames.

The biggest movers
Bromley in Greater London has fallen most in the league table, dropping seven places from 14th in 1996 to 21st in 2016, whilst Hackney is the biggest climber on the list,.

London house prices are now nearly 12 times average earnings

In 1996, the average price to earnings ratio in the capital was 3.9. This had risen to 11.6 in 2016.
All of this means that average earnings in London have failed to keep pace with the rise in house prices over the past 20 years.

Camden remains the least affordable borough both 20 years ago and today, with a ratio house price to average earnings of 6.2 in 1996 and 20.0 in 2016. Bexley was the most affordable borough in 2016 (7.4) followed by Havering (7.7).

Increase in housing supply

The Home Builder Federation (HBF) and construction data provider, Glenigan, have released their latest Housing Pipeline report and they claim it demonstrates the house building industry’s commitment to continuing the increase in housing supply.

The highest since the survey began

Between July and September 2016, permissions for 76,242 homes were granted in England. With the total number for the 12 months to September reaching 289,011, the highest since the survey began back in 2006. Although it’s not all good news for builders as the number of actual sites these permissions are on, has dropped. The HBF claims this indicates Local Authorities are granting permission for an increasing number of large strategic sites as opposed to the type and mix of size of site needed to deliver more homes. HBF are calling on Councils not to rely on one large site to meet their local housing needs as they will most likely have greater infrastructure requirements meaning they inevitably take longer to build.

Allow builders onto sites earlier

The Government’s efforts through the Neighbourhood Planning Bill to introduce a new process for agreeing pre-commencement conditions has been welcomed by the HBF, but it has urged ministers to go further in limiting the number of conditions and would like to see the prevention of authorities from imposing spurious conditions that could be dealt with later in the construction process allowing builders to get onto sites earlier with a ‘permission’.

10% rise

Economics Director, Head of Business Market Intelligence at Glenigan, Allan Wilén, said;
“The 10% rise in the number of units approved during the third quarter was driven by an increase in private housing.  The rise demonstrates that housebuilders remain confident about market prospects for the year ahead with a firm development pipeline ensuring that housebuilders are well placed to meet demand.”

Unblock the system

Executive Chairman of the HBF, Stewart Baseley, said;

“The house building industry is committed to building more homes but can only do so if it has the land on which to build them. It is encouraging that so many headline planning permissions are being granted but we simply have to find a way to unblock the system and reduce the time it takes to get a permission to the stage where builders can actually start building. Construction work shouldn’t be held up by council officers getting round to approving designs for landscaping, playgrounds or ensuring developers are liaising with community artists. These could be agreed whilst infrastructure work gets started. Our housing crisis is too serious a threat to our future for everyone not to be pulling in the same direction.

“House builders are keen to increase output further but all parties need to work together if we are going to solve our housing shortage”.

“Today’s announcement may feel like a welcome start to the New Year but as always we need to see these plans put into swift action. The dream of home ownership is too far out of reach for thousands of aspiring first time buyers (FTBs), and the building of new homes on disused brownfield sites, as well as a 20% discount for buyers aged 23-40 will go some way to bridging this gap. News that the Government will deliver 14 new ‘garden’ towns and villages outside of existing settlements will also relieve some of the pressure on supply and demand, which should in turn act as a catalyst to help FTBs fulfil their dreams of homeownership. However, we must not throw caution to the wind. The Government has made promise after promise and pledge after pledge to help FTBs get onto the housing ladder, but until we see these houses built we won’t hold our breath.”