This takes the average price of a home to £202,436 with the slowing of activity not a surprise due to increased market growth in March due to stamp duty changes, according to the index report from the Nationwide.
Robert Gardner, Nationwide's chief economist, said that the slowdown returns the annual pace of house price growth to the fairly narrow range between 3% and 5% that had been prevailing since the summer of 2015.
‘It may be that the surge in house purchase activity resulting from the increase in stamp duty on second homes provided a temporary boost to prices in March. However, it is possible that the recent pattern of strong employment growth, rising real earnings, low borrowing costs and constrained supply will tilt the demand/supply balance in favour of sellers and exert upward pressure on price growth once again in the quarters ahead,’ he explained.
He pointed out that there were 165,400 transactions in March, an all-time high, some 11% higher than the previous peak of 149,000 recorded in January 2007 and estimates from the Council of Mortgage Lenders suggests that mortgage lending also rose sharply, to almost £26 billion in March, up 43% from the £18 billion recorded in February.
‘If confirmed by Bank of England data later this week, this would suggest a strong outcome, up nearly 60% year on year and also well above recent highs of £22 billion per month recorded in early 2015, though still well below the all-time high of £34.9 billion recorded in June 2007,’ Gardner said.
‘The increase in mortgage lending is likely to have been driven by a sharp increase in buy to let investors bringing forward their purchases before the stamp duty changes took effect. Buy to let has accounted for an unusually high share of lending in recent months, at around 19% of lending in the three months to February, but the strength of activity suggests its share could surpass 25% in March,’ he explained.
‘Viewing the transactions and mortgage lending data together suggests that, while buy to let lending is likely to have risen strongly in March, a large proportion of the boost to house purchase activity came from cash buyers,’ he added.
Gardner also pointed out that cash purchasers have become a more significant part of the market since the financial crisis, accounting for around 35% of all transactions since 2008 compared with around 25% in 2006/20007.
‘Cash investors would have also been better placed to buy properties in the relatively short period of time between the stamp duty announcement at the November Autumn Statement and the implementation on 01 April,’ he added.
But a continued limited supply of properties could mean that the market could still be lively in the coming months, according to Michelle Grant, investment director of Grant Property.
‘We will be monitoring the impact the new tax is having on the market over the coming months to see if there are any wider implications of its implementation. The fundamentals of the market remain the same, there is limited supply of properties on the market to buy and for tenants to let,’ she added.
The outlook is hard to predict, according to Rob Weaver, director of investments at property crowdfunding platform Property Partner. ‘Despite strong employment, wage growth and cheap borrowing, there are jitters over whether we’re in or out of Europe,’ he pointed out.
‘It’s likely this uncertainty will have a pause effect on prices in the lead up to the referendum on 23, with a fall in property transactions. But what is certain, there are fewer decent properties currently available on the market as buy to let landlords have sucked them up pre-April,’ he said.
‘The irony is that the Chancellor’s April stamp duty hike could actually result in falling revenues for the Treasury, at least in the short term, as fewer people complete on purchases. The crisis in supply and insatiable demand will again mean a sellers’ market and we will probably see a continuing rise in prices but by now much is anyone’s guess,’ he added.
Even with the slowdown the market is still brisk, according to Jonathan Hopper, managing director of the buying agents Garrington Property Finders. ‘Buyers are out in force, and with strong demand and chronically insufficient supply in many areas, we should expect to see more steady price rises during the summer months,’ he said.
‘The April slowdown is likely to presage a return to more normal rates of price growth rather than a serious slowdown in the market. We’re also getting a better idea of just how skewed the March figure was by the surge in demand from buy to let buyers rushing to complete before the stamp duty increase for second home buyers,’ he explained.
‘With buy to let mortgages accounting for a quarter of all home loans granted in March, the spike in competition this created drove the rate of price growth to what’s likely to be a high water mark,’ he added.
He also pointed out that London’s extraordinary run of price rises is slowing, and as the capital begins to suffer a flight of equity, it is falling further behind both South East England and East Anglia where annual rates of price growth still comfortably exceed double digits.
‘This trend is likely to continue, as the capital’s prime property, so beloved of international buyers, is more susceptible to concerns over the outcome of the Brexit referendum than anywhere else,’ he said, adding that lack of supply should help prices to keep rising.
Mark Posniak, managing director at Dragonfly Property Finance, believes that there is now a fair chance the market will now be relatively subdued in the run-up to the EU referendum. ‘Demand will by no means disappear as borrowing costs are still low and in many areas of the country there is still value to be had, but a tapering off is likely,’ he said.
‘Whether we're in or out of Europe could affect whether prices go up or down for some time to come. While supply remains tight, a weak first quarter for the economy coupled with a surprise rise in unemployment could constrain both sentiment and demand. Rising inflation and sluggish wage growth could also have an impact on price trends in the months ahead,’ he explained.
‘What's very clear is that we are entering an uncertain period for the market and economy alike. Where prices are going next is becoming increasingly hard to predict. What happens in the next few months could impact where the market goes in the next few years,’ he added.
Russell Quirk of eMoov does not believe that the market will slow as much as forecast over the coming months. ‘The rate of growth may have dropped annually, but looking month to month, prices are still on the up and the average UK house price is still at its highest level over the course of the last year,’ he said.
‘This continual growth since last April wasn’t brought on by the changes to stamp duty and, although we may see a slight dip in activity over the coming month, prices are likely to carry on increasing for the foreseeable future. So my bet is firmly placed that 2016 will see a very positive rise in values overall, notwithstanding the regional differences that indexes such as these always mask,’ he added.
Another expert who believes that the April lull in the market will continue is Alex Gosling, chief executive officer of HouseSimple. ‘It’s an interesting time for the property market as we don’t really know where it’s going to go. What we do know is supply levels are stagnant. Whilst this goes in the favour of sellers, if we’re to see more first time buyers come into the market, more homes need to be built,’ he said.
