Small uptick in annual house price growth

Michael Lloyd

April 27, 2018

Annual house price growth has picked up to 2.6% in April from 2.1% in March with prices rising by 0.2% month-on-month, Nationwide’s House Price Index.

February saw a softening in house purchase approvals to 64,000 cases, following a surprise rise in January. These figures are broadly in line with our expectations and close to the average for the last three months of 2017.

Surveyors continue to report subdued levels of new buyer enquiries and recent months have also seen a softening in new instructions.

Robert Gardner, Nationwide’s chief economist, said: “Looking ahead, much will depend on how broader economic conditions evolve, especially in the labour market, but also with respect to interest rates.

“Subdued economic activity and the ongoing squeeze on household budgets is likely to continue to exert a modest drag on housing market activity and house price growth this year.

“We continue to expect house prices to rise by around 1% over the course of 2018. What’s happening with cash buyers? The share of cash transactions has declined a little over the past eighteen months.

“This is due in part to the introduction of the additional stamp duty levy on second properties which has impacted the purchase of second homes and rental properties, a large proportion of which tend to be conducted in cash.

“Nevertheless, cash buyers continue to play an important role in the housing market, accounting for around a third of transactions.”

Demographic shifts are also playing a role in supporting the number of cash transactions. As the population ages, the proportion of people who own their home outright has increased. And when these people transact they are more likely to do so in cash.

The number of people in England who own their home outright overtook those who own with a mortgage in 2014, as shown in the chart above.

Craig Hall, new build manager, Legal & General Mortgage Club, said: “There is a good deal for first-time-buyers to cheer about in the housing market right now.

“Property prices are now rising at much healthier levels, while mortgage rates are still competitive and support from various schemes such as Help to Buy remains on hand to help buyers onto the housing ladder.

“However, we cannot forget that there are buyers out there who are still finding it difficult to take their first step, and for these individuals speaking to a broker can make a big difference.

“Whether it’s raising awareness about schemes like shared ownership or providing access lenders that are willing to meet their needs, advisers can play a crucial role supporting borrowers to find their route to homeownership.”

Meanwhile, home mover activity has remained relatively subdued, in part due to the lack of stock on the market.

Buy-to-let purchases have fallen as a share of total transactions since 2016, which reflects a softening in demand following tax changes and changes in underwriting standards.

Paul Osborn, chief executive for Foresters Friendly Society, said: “The real challenge remains affordability – this is certainly the case for first time buyers.

“However, by being savvy about finances and by taking advantage of the saving products and linked benefits available, long-term saving goals are much more achievable.”

Gardner added: “The significant increase in the share of cash purchases in 2008 was a function of the sharp decline in mortgage transactions, rather than cash transactions increasing.

“This reflected the impact of tightening credit conditions during the financial crisis and the deterioration in labour market conditions, which reduced the number of people able to buy with a mortgage, while such constraints would have had less of an impact on cash purchasers.

“Our analysis of Land Registry data suggests that the share of cash purchases in London and the Outer Metropolitan regions is below the average for Great Britain.

“This may reflect the fact that these are the most expensive regions (prices in London are over twice the UK average), which presumably acts as a limiting factor.

“In recent years, we have seen a recovery in first-time buyer transactions, which are now broadly in line with pre-crisis levels. The easing in credit availability, including schemes such as Help to Buy, have helped boost activity.”

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