Property prices in the UK increased by 0.2% in December and ended the year up 2.6% on an annual basis, less than the 4.5% recorded at the end of 2016, the latest index data shows.
London has been the weakest performing region, with house prices down 0.5% year on year and overall there are significant differences in regional affordability, but saving for a deposit remains challenging for most, says the index report from lender the Nationwide.
Robert Gardner, Nationwide’s chief economist, pointed out that annual house price growth was within the 2% to 4% range throughout 2017 which was in line with expectations and broadly consistent with the 3% to 4% annual rate of increase expected over the long term.
‘However, this marked a modest slowdown from the 4% to 6% rates of house price growth recorded in 2016. Low mortgage rates and healthy employment growth continued to support demand in 2017, while supply constraints provided support for house prices. But this was offset by mounting pressure on household incomes, which exerted an increasing drag on consumer confidence as the year progressed,’ Gardner said.
‘The impact of previous policy changes, including additional stamp duty on second homes, changes to tax deductibility of landlord expenses and lending criteria, meant that demand from buy to let investors remained subdued in 2017,’ he explained.
‘The significant disparity in house prices across the UK has been a recurring theme in recent years. In this respect, 2017 saw the beginnings of a shift, as rates of house price growth in the south of England moderated towards those prevailing in the rest of the country,’ he added.
He pointed out that London saw a particularly marked slowdown, with prices falling in annual terms for the first time in eight years, albeit by a modest 0.5%. ‘London ended the year the weakest performing region for the first time since 2004,’ Gardner added.
Gardner also explained that how the housing market performs in 2018 will be determined in large part by developments in the wider economy and Brexit developments will remain important, though these remain hard to foresee.
‘We continue to expect the UK economy to grow at modest pace, with annual growth of 1% to 1.5% in 2018 and 2019. Subdued economic activity and the ongoing squeeze on household budgets is likely to exert a modest drag on housing market activity and house price growth,’ Gardner said.
‘Nevertheless, housing market activity is expected to slow only modestly, since unemployment and mortgage interest rates are expected to remain low by historic standards. Similarly, the subdued pace of building activity evident in recent years and the shortage of properties on the market are likely to provide ongoing support for house prices,’ he explained.
‘Overall, we expect house prices to record a marginal gain of around 1% in 2018. Over the longer term, once the economy regains momentum, we expect house prices to rise broadly in line with earnings, around 3% to 4% per annum, though if the rate of house building fails to keep up with population growth, prices may outpace earnings once again, as they have in recent years,’ he pointed out.
‘The UK housing market has been characterised by significant regional disparities in house prices in recent years and it is not clear how Brexit will impact these dynamics. Much will depend on the nature of the Brexit impact on the UK economy in terms of its impacts on different sectors and the resulting geographic consequences,’ he added.
Jeremy Duncombe, director of the Legal & General Mortgage Club, believes that the housing market is in a much healthier position than previous years. ‘House price growth is now more or less in line with inflation and the recent exemption of stamp duty for first time buyers, is very welcome news for those looking to buy in 2018,’ he said.
‘We expect to see house price inflation remain steady at the current levels, allowing first time buyers to take their first step onto the property ladder. However, for those concerned about affordability or where to begin securing a mortgage, speaking to a mortgage broker will enable potential buyers to gain a better understanding of the mortgage market and the different schemes available,’ he added.
The major surprise during 2017 was undoubtedly the slowdown in London house prices, according to Alex Gosling, founder of online estate agents HouseSimple. ‘It’s been 13 years since the capital sat at the bottom of the house price growth table, and since then we have seen prices surge to unprecedented and unaffordable levels,’ he said.
‘Historically, you would expect activity in the housing market to pick up in the first quarter of the year. But with Brexit looming in 2019, it’s difficult to gauge how buyers and sellers will react. The first time buyer stamp duty cut in the Budget should at least give the bottom end of the market a much needed confidence boost and help keep the market moving,’ he added.
Jonathan Hopper, managing director of Garrington Property Finders, said that his firm is seeing a flight of equity from London as many domestic buyers look for better value elsewhere, but the weak Pound and softening prices in the capital’s premier postcodes continues to attract the interest of opportunistic international buyers.
‘As long as we don’t see any shock events this year, such as a change of Government or a derailing of Brexit negotiations, there is every reason to believe that movers are accepting a new reality and will keep calm and carry on in 2018,’ he pointed out.
‘Nevertheless demand is being channelled by one over-riding consideration, affordability. With wages falling in real terms and buyers wary of overpaying while the market is in flux, even the most determined buyers are willing to walk away if the price isn’t right. Even though prices continue to be propped up by limited supply, for astute and committed buyers there are strong buying opportunities to be had,’ he concluded.