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UK house prices continued to see steady growth in September

House prices in the UK increased by 0.3% in September but annual property price growth has slowed to 5.3% from 5.6% in August, according to the latest index to be published.

The monthly rise took the price of an average home to £206,015, the data from the Nationwide Building Society, one of the biggest lenders, also shows.

Quarter on quarter prices increased by 1.3% with a breakdown of the figures showing they were up by 1.4% in Scotland and Northern Ireland, by 1.1% in England and by 0.2% in Wales in the third quarter of 2016.

Robert Gardner, Nationwide’s chief economist, pointed out that price growth remains within the narrow range of 3% to 6% that has prevailed since early 2015. ‘The relative stability in the rate of house price growth suggests that the softening in housing demand evident in recent months has been broadly matched on the supply side of the market,’ he said.

‘While new buyer enquiries have remained fairly subdued, the number of homes on the market has remained close to all-time lows, in part due to low rates of construction activity and regional price trends were also little changed,’ he added.

Regions in the south east of England continued to record the strongest gains even though price growth slowed noticeably in the Outer Metropolitan region from 12.4% in the second quarter to 9.6% in the third quarter and in London from 9.9% to 7.1% in quarter three.

‘The number of new homes built in England has picked up, but is still not sufficient to keep up with the expected increase in the population. In the four quarters to the second quarter of 2016 some 139,000 new houses were completed, 30% higher than the low point seen in 2010,’ Gardner said.

‘However, this is still around 15% below the average rate of building in the five years before the financial crisis and 38% below the 225,000 new households projected to form each year over the coming decade,’ he explained.

‘With interest rates expected to remain low and schemes, such as Help to Buy, helping to provide those with smaller deposits access to finance, housebuilders should have confidence that there will be sufficient demand from buyers if more homes are built,’ he also pointed out.

‘The major house builders appear to have capacity to expand output, with most reporting land banks that could support around five years’ worth of construction at current rates of building activity. There is a risk that the uncertain economic outlook may weigh on activity in the period ahead,’ he added.

The analysis of the figures show that regions that are more affordable, such as the North West and Yorkshire and Humberside, have seen the smallest increases in housing stock with a rise of 1.6% over the 2013 to 2016 period, below the increase of 2.2% recorded in England and Wales as a whole.

By contrast, areas such as the Outer South East and the South West, where house prices were relatively expensive, have seen the housing stock rise much more quickly by 2.4% and 2.6% respectively, over the same period.

There is a fairly close linear relationship between increasing affordability pressures and increases in housing stock, at least when London and the Outer Metropolitan regions are excluded. This suggests that supply has been less responsive to rising affordability pressures than we might have expected in the capital and the surrounding area,’ Gardner said.

‘Even though London saw the largest percentage increase in its housing stock over the period at 2.9% we would have expected a rise of 4.3% given the elevated house price to earnings ratio and the experience of other regions,’ he added.

‘Similarly, given the elevated house price to income ratio in the Outer Metropolitan region, we would have expected the housing stock to rise by 3.2% rather than the 2.1% recorded over the same period,’ he concluded.

According to Ian Thomas, director at online mortgage lender LendInvest, the figures are a useful barometer for what happens next. ‘While transactions have certainly slowed in prime central London following the additional stamp duty charge on second homes and the Brexit vote, there is clearly a strong desire to buy across much of the rest of the country,’ he said.

Rob Weaver, director of investments at property crowdfunding platform Property Partner, believes that the stability in the residential property is reassuring particularly post-Brexit and proof of the underlying strength in this market compared to the panic seen in the commercial sector.

‘The uncertainty following the EU referendum result and a hike in stamp duty have seemingly dampened buyer enthusiasm. In our experience September has not seen the normal pickup in activity after the summer recess, as we suspect buyers and investors have merely delayed rather than cancelled their decision to buy,’ he explained.

‘Stable house prices is really positive but the low levels of activity in the market is a continuing concern and an indication that it is still difficult to get mortgage finance despite the recent lowering of the base rate. Although London price growth has softened due more to stamp duty rather than Brexit, the capital remains the engine driving the housing market and yea on year the north/south divide is widening,’ he pointed out.

‘With low unemployment, increasing consumer confidence and record low interest rates, we may just see an uplift in demand. If this happens, then price growth should continue to increase,’ he added.

The fact that prices are showing stronger rates of growth both quarter to quarter and annually when compared to September of last year is a positive sign, according to Russell Quirk, chief executive officer of eMoov who added that September has also seen the third largest annual price growth year on year.

But it is too early to talk about a post Brexit boost, according to Jonathan Hopper, managing director of Garrington Property Finders. ‘Price rises in the wake of the vote have been flattered by a temporary injection of pent-up demand as buyers who sat on the fence in the run-up to the referendum finally get off it,’ he said.