UK house prices up 0.3% but annual growth slows

UK house prices increased by 0.3% in August but annual growth has softened to 3.2% from 3.5%, according to the latest residential property index.

The data from lender the Nationwide shows that the average price is now £195,279 and chief economist Robert Gardner said that the fall in the annual rate of growth is due to prices having increased at a particularly strong rate in August 2014.

Nevertheless, the annual rate of price growth was the weakest since June 2013. ‘This month’s data provides further evidence that annual house price growth may be stabilising close to the pace of earnings growth, which has historically been around 4%,’ explained Gardner.

‘However, survey evidence cautions that this trend may not be maintained unless construction activity accelerates. Surveyors reported the lowest ever number of properties on their books in July whilst new buyer enquiries picked up,’ he added.

He pointed out that UK house prices have proved remarkably resilient in recent years, certainly compared with many other developed economies. For example, UK house prices didn’t fall as far during the financial crisis, and even where they declined by a similar magnitude, UK prices generally recovered their pre-crisis levels more quickly.

Indeed, UK house prices are currently around 5% above their pre-crisis levels, while prices are still well below their pre-crisis peaks in Ireland, down 38%, Spain down 36% and the Netherlands down 18%.

‘Clearly house price trends are determined by a wide range of factors, but labour market developments are amongst the most important. The strength of the UK labour market in recent years is a key reason why house prices have recovered more quickly,’ said Gardner.

‘There is a strong correlation between employment and house price growth since the financial crisis across the major developed economies. House prices remain further below their pre-crisis peaks in countries where employment is also well below pre-crisis levels,’ he explained.

‘Supply side developments also play an important role in explaining the divergence in house price performance. The UK experienced a much smaller increase in building activity in the run up to the financial crisis. As a result, there was much less of an overhang of unsold properties to be worked off in recent years,’ he added.

‘However, with UK house building running well below the expected rate of household formation in recent years and with demand for homes rising, a significant increase in construction activity is required if affordability is not to become stretched in the years ahead,’ he concluded.

According to Alex Gosling, chief executive officer of online estate agents House Simple, any hope that sellers were finally returning to the market seems to have been a vain one for the time being. ‘A boost to new stock levels in June suggested that we were finally starting to see some movement from sellers, but that momentum seems to have been short lived. The General Election, which the market hoped would provide a catalyst for sellers, is long gone and property stock numbers remain well below normal levels,’ he pointed out.

He believes that there are many reasons why people are not moving home including because they can’t afford to as property prices have risen out of reach, or that they are not confident about market conditions despite the strength of the economy and the highly competitive mortgage rates on offer at the moment.

‘Somehow, sellers need to be encouraged back to the market because there are buyers galore waiting when they do. It’s a very attractive market right now for motivated sellers,’ he suggested.

‘The next few months are going to be important as the property market looks to gather momentum heading into the last quarter of the year. We fully expected activity to drop off in the summer months, but come the Autumn the market needs to replenished with stock to realign the supply versus demand balance,’ he added.