Property prices more or less stagnant in UK in June, latest index shows

Home prices in the UK increased marginally by 0.2% month on month and while they are 3.3% higher compared to a year ago, in real terms they are down by around 1.2%, the latest index report shows.

In Greater London prices edged up by 0.1% in June month on month but average prices remain unchanged since July 2016, according to the data from Home.co.uk.

The highest monthly price rise was in the West Midlands at 0.8%, followed by Scotland up 0.7% and the East Midlands and Wales both up 0.6%. But the report points out that longer marketing times in the East of England, the South East and Greater London reveal that these formerly vigorous property markets are slowing.

The number of properties entering the UK market is up overall by 5% year on year and supply has surged further in the East, London and South East, by 18%, 21% and 14% respectively compared to June 2016.

‘The UK property market has clearly entered a period of stagflation. Our data suggests that home price growth has been lower than inflation for six consecutive months. Whilst the average asking price is 3.3% more than in July 2016, the Retail Price Index (RPI) is rising faster making home prices fall overall, in real terms, by around 1.2%,’ said Doug Shephard, director of Home.co.uk.

He explained that currently only four regions are showing genuine real rises in asset values, namely the East of England, the East Midlands, the West Midlands and the South West. Forecasts are for the RPI to ‘spike’ and fall back to around 3% over the next few years.

‘However, in the wake of the London boom, UK home prices look set to endure several years of low growth, hence this stagflationary period could be rather prolonged. With Greater London, the worst performing area, showing zero price growth year on year, it is the regions that are supporting the current overall growth figure. The main contributors are the East of England, the East Midlands, the West Midlands, and the South West, all with year on year price rises above 4%,’ he added.

The report also show that there has been an unseasonal price dip in the East of England suggests that mounting supply, up 18% in the region, coupled with record high pricing is taking its toll on demand. Shephard believes that looking forward, this region may not contribute to the overall growth figures as before.

Market conditions in the North continue to improve. The time on the market of unsold property has reduced by 5% since July 2016 in both the North East and the North West, although the typical time on the market remains much higher than in the South.

Prices are also rising in the North with home values increasing at a greater rate than in recent years. Annualised growth in the North West is now outpacing London and the South East, but still remains lower than the national average in Yorkshire and the North East.

Wales and Scotland have also shown some moderate growth over the last six months but the typical time on market is not improving in either country. In fact, in Scotland the median is now 5% longer than in July 2016, although falling supply, down 15%, will help support prices going forward, the report explains.
The firm predicts significant price falls in the London region over the autumn and winter months ahead. In July 2016 the annualised rate of increase of home prices was 6.1% but today the same measure is 3.3%.

‘When property prices are rising more slowly than inflation, bricks and mortar becomes a much less attractive proposition for investors. Even with the promise of rental yield, investors in most parts of Greater London will be lucky not to be losing money in the current environment,’ said Shephard.

He pointed out that the South East seems to be following a similar path as London and the East of England looks poised to follow. ‘Should this kind of domino effect take place, and history tells us this is the classic pattern, the UK is going to have a lousy loss making property market,’ he explained.

‘Realistically, interest rates can’t go down any further. In fact, the contrary is likely at some point in the not too distant future, especially since the pound is so weak, and raising the cost of borrowing has, historically, always been the remedy of choice. Clearly this would not bode well for the property market but it is plain to see that the huge boom across most of the UK, precipitated by record low interest rates, appears to be coming to an end,’ he concluded.

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