This meant that annual price growth slowed to 4.7%, taking the average price to £204,368, but activity in the market is expected to slow in the coming months due to a spike in March due to stamp duty changes and now the Brexit vote.
Robert Gardner, Nationwide's chief economist, pointed out that the annual pace of house price growth remains in the fairly narrow range between 3% and 5% that has been prevailing for much of the past 12 months.
‘In the near term, it’s going to be difficult to gauge the underlying strength of activity in the housing market due to the volatility generated by the stamp duty changes which took effect from 01 April,’ he said.
‘Indeed, the number of residential property transactions surged to an all-time high in March, some 11% higher than the pre-crisis peak as buyers of second homes sought to avoid the additional tax liabilities,’ he explained.
He also pointed out that while cash purchases accounted for a significant proportion of the increase in activity it is not possible to determine whether or not these were purchased by landlords. Mortgage data suggests that, while buy to let purchases were a major driver of the increase, the purchase of second homes also accounted for a substantial proportion. The number of home mover mortgages, which is where second home purchases with a mortgage would show up, increased sharply in March.
‘House purchase activity is likely to fall in the months ahead given the number of purchasers that brought forward transactions. The recovery thereafter may also be fairly gradual, especially in the buy to let sector, where other policy changes, such as the reduction in tax relief for landlords from 2017, are likely to exert an ongoing drag,’ said Gardner.
‘Nevertheless, healthy labour market conditions and low borrowing costs are expected to underpin a steady increase in housing market activity once stamp duty related volatility has passed, providing the economic recovery remains on track,’ he added.
‘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 added.
Gardner also explained that it is difficult to gauge how sentiment from overseas buyers will be impacted by increased economic uncertainty caused by Brexit on the one hand and the sharp decline in Sterling on the other, which, if sustained, reduces the cost of UK property in foreign currency terms.
He pointed out that property prices in London have been supported by extremely robust labour market conditions as well as strong investor demand in recent years. Indeed, the price of a typical London property is £472,384, some 12 times average earnings in the capital.
In the market regional disparities continue to grow with southern areas of England recording the fastest rates of house price growth in the second quarter of the year. The Outer Metropolitan region again had the strongest rate of annual price growth of 12.4% up from 12.2% in the previous quarter.
Despite a slowing in the second quarter, London was still the second strongest region with prices up 9.9% to a new all-time high, some 54% above pre-crisis levels and compared with 10% for overall UK house prices.
The North of England was the only region to see house prices decline in the second quarter of 2016 and as a result replaced Northern Ireland as the UK’s least expensive region. Average prices in the North are currently 9% below their pre-crisis peak.
‘It remains the case that the pace of house price growth tends to decline as you move from the south to the north of the country, even though prices in the south are already well above pre-crisis levels, while in Northern Ireland, Scotland, Wales and the North of England prices remain well below their 2007 highs,’ said Gardner.
He believes that it is unclear how long this pattern will persist, and whether the north/south divide in house price levels will continue to widen and the outlook for London is particularly uncertain because landlords and overseas buyers play a larger role in the market, and the outlook for demand from these sources is particularly uncertain.
Randeesh Sandhu, chief executive officer of Urban Exposure, believes that over the next few months transactions levels and mortgage approvals will be weaker than would have been the case if a Remain vote had prevailed in the referendum.
‘But in a low interest environment, we do not expect a sharp rise in forced sales or a price crash, and believe house prices will remain steady. It will be several months before a clearer picture emerges of how home builders, some of which are suffering huge volatility on the markets, and lenders whose cost of capital may well now increase and ultimately home buyers whose confidence may be low, will collectively respond to this new reality,’ he added.
According to Alex Gosling, chief executive officer of online estate agents HouseSimple, any drop in purchases in the shorter term will be counterbalanced by the continued lack of supply, which should prop up prices.
‘How London fares could be crucial to the longer term health of the housing market. The worry is that foreign investors will fall and if the capital's property market stalls, that contagion could quickly spread to the rest of the country,’ he said.
‘These are unprecedented times, but if 2008 shows us anything, the property market is resilient, and there's no reason to think that it can't face head-on any challenges that lie ahead,’ he concluded.
Jonathan Hopper, managing director of buying agents Garrington Property Finders, said that the prime London property market is the most exposed to a Brexit fall out.
‘While we can’t be sure how much things will slow, it’s inevitable that more nervous investors will sit on their hands while the opportunists circle. Outside London the impact will be less dramatic, but the uncertainty will do little to unblock the supply shortage. Would-be sellers will be more likely to stay put, and this tightening of supply may prop up prices to a degree,’ he pointed out.
‘All this points to a soft landing rather than a crash, but the uncertainty is such that normal rules have been suspended,’ he added.
The fundamentals of the UK housing market won’t change, according to Ian Thomas, director of online property investment company LendInvest. ‘People still need homes to live in, whether we are in the EU or not, and the fact is that demand for housing massively outstrips supply,’ he said.
‘Brexit may create opportunities too. It could result in the housing market cooling and resetting in areas where house price growth has locked out first time buyers and others that want to purchase property,’ he added.
