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House Price Growth at 6-Year Low

Quarterly house price growth in the UK has slowed down to its lowest rate in 6 years.

According to the Halifax house price index, the average house in the UK costs £224,578, a 0.3% rise compared to this time last year. This is the lowest annual growth rate since December 2012, when the UK was in a recession.

In fact, house prices have fallen in the last month, with the average price of a house in November down 1.4% from the previous month. Halifax’s data has shown that average house prices have fallen in three out of the past four months. Overall, the average value of a UK home has dropped 1.1% over the last quarter.

Analysts have claimed that economic uncertainty over Brexit has limited the growth of the UK housing market. On Friday, property developers Berkeley Group warned that the short-term outlook is “clearly uncertain due to the ongoing Brexit process and a number of headwinds in the operating environment in London and the south-east”, and that such uncertainty has had a “consequential adverse impact on investment levels and transaction volumes”.

Last month the Bank of England claimed that in a worst-case no-deal Brexit scenario average house prices could fall by 30% once the UK leaves the EU. At the same time, if the government is successful in securing a smooth Brexit transition deal, higher borrowing costs could result in the Bank of England raising their interest rates. This could cause affordability problems for a large proportion of the population, resulting in further slowdowns or even drops in average house prices.

Price growth in the more expensive areas of the country in particular has been relatively strong in the mid-long term since the crash in 08. Average prices in London and the South East have risen by 40% over the past five years alone. Economists have suggested that a lack of new housing and the help-to-buy subsidy have contributed to the rapid increases. Higher demand from foreign investors has also helped drive up prices, especially in London.

Many economists believe that the growth trend over the last few years is not sustainable, as house prices continue to rise above real wage growth. According to the Office of National Statistics, the average full-time worker had to pay 9.7 times their yearly salary in order to buy a newly built home in 2017. This figure has more than doubled in the last twenty years, as in 1997 workers were expected to pay just 4.6 times their salary.

Also, the amount of high loan-to-income ratio mortgages offered by banks has been limited by the Bank of England, so first-time buyers need to pay even more on their deposits if they want to buy a house. All these factors have lead to decreased affordability throughout the housing market, suggesting that the housing price growth over the last few years cannot be sustainable.

Hansen Lu, a property economist at Capital Economics, said: “The fundamentals suggest that an acceleration in house price growth is unlikely. House prices are still very high relative to incomes and this is unlikely to change soon.”

Source: Money Expert

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Halifax house price index: House prices hit new record – but activity remains ‘soft’

House prices rose by 3.3 per cent in the second quarter of the year, hitting a new record of £230,280 – but caution still reigns over the property market.

Prices rose 1.4 per cent in July, according to the Halifax house price index, up 1.3 per cent on a quarterly basis.

Russell Galley, managing director of Halifax, welcomed these figures as the largest increase since last November.

But he noted that “housing activity remains soft”.

“Despite the recent modest improvement in mortgage approvals, the latest survey data for new buyer enquiries and agreed sales suggest that approvals will remain broadly flat until the end of the year,” Galley added.

“In contrast, the labour market remains robust, with the numbers of people in employment rising by 137,000 in the three months to May with much of the job creation driven by a rise in full-time employment. Pressures on household finances are also easing as growth in average earnings continues to rise at a faster rate than consumer prices.”

He noted that the recent Bank of England rate rise, from 0.5 per cent to 0.75 per cent, was unlikely to have a significant effect “on either mortgage affordability or transaction volumes”.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, echoed his views on the impact of a rate rise, but was less bullish overall.

“House prices experienced a rebound in July but this was mainly due to shortage of stock and continuing low mortgage rates, as we have found on the high street that many buyers have already factored in the increase in interest rates. It is almost as if the north/south divide is working in reverse with more activity outside rather than inside the capital.

“There is still no clear pattern to the market after June saw the slowest growth for five years. Viewings are up but it is hard to obtain commitment as political and economic uncertainty remain.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, added: “Month-to-month changes in Halifax’s measure of house prices always should be taken with a large pinch of salt, given that its index is four times as volatile as the official measure. Most other indicators of house price growth remain weak…

“Surveys show that few households saw August’s rate hike coming, so its wider impact on sentiment and their willingness to borrow likely will be relatively large. Meanwhile, year-over-year growth in average weekly wages is strengthening only gradually, while loan-to-income ratios increasingly are constrained by the limits introduced by the FPC in 2014.

“Accordingly, we doubt that the jump in Halifax’s measure of house prices in July marks a turning point for the market.”

Jonathan Samuels, chief executive of property lender Octane Capital, agreed.

“It would be premature to pop the champagne corks on the back of this seemingly robust data,” he said. “The annual rate of growth may have shot up between June and July but weak supply rather than robust demand is the primary driver.

“The market might look punchy on the outside but it’s pallid on the inside. Transaction levels overall are low and it’s hard to see them picking up materially in the months ahead as Brexit uncertainty heightens.”

Source: City A.M.