Annual house price growth grinds to a halt
Annual house price growth in the UK has ground to a halt in June, with prices down 0.1% year-on-year according to the latest House Price Index by Nationwide. This represents the first negative annual growth since 2012 as the effects of the pandemic begin to show.
Prices saw a monthly decline of 1.4% and regional house price growth rates were within the narrow range of 0-5% in Q2.
Robert Gardner, chief economist at Nationwide, said: “This is the first time that annual house price growth has been in negative territory since December 2012. It is unsurprising that annual house price growth has stalled, given the magnitude of the shock to the economy as a result of the pandemic.
“Economic output fell by an unprecedented 25% over the course of March and April – almost four times more than during the entire financial crisis. Housing market activity also slowed sharply as a result of lockdown measures implemented to control the spread of the virus. While latest data from HMRC showed a slight pickup in residential property transactions from April’s low, in May they were still 50% lower than the same month in 2019.”
Mortgage activity has also seen a dramatic slowdown, with only 9,300 approvals for house purchases in May compared to 73,700 in February. This is an 86% decline from figures recorded in May 2019.
Gardner claims that the ability to generate the index is yet to be impacted. He adds: “Our ability to generate the house price index has not been impacted to date, as sample sizes have remained sufficiently large (and representative) to generate robust results.
“With lockdown measures due to be eased in the weeks ahead, housing market activity is likely to edge higher in the near term, albeit remaining below pre-pandemic levels. Nevertheless, the medium-term outlook for the housing market remains highly uncertain. Much will depend on the performance of the wider economy, which will in turn be determined by how the pandemic and restrictions on activity evolve (including any behavioural shifts).
“The raft of policies adopted to support the economy, including to protect businesses and jobs, to support peoples’ incomes and keep borrowing costs down, should set the stage for a rebound once the shock passes, and help limit long-term damage to the economy. These same measures should also help ensure the impact on the housing market will ultimately be less than would normally be associated with an economic shock of this magnitude.”
On a regional basis, the North West was the strongest performing region, with annual price growth rising slightly to 4.8%. Annual house price growth in London edged higher with prices up 2.1% in Q2, with average prices in the capital now just 3% below the all-time highs recorded by the index in Q1 2017 and 55% above their 2007 levels.
Scotland was the strongest performing nation in Q2, with annual price growth rising to 4.0%. Conditions remained “subdued” in Wales and Northern Ireland, where there was annual price growth of 1.0% and 0.1% respectively.