Annual UK house price growth increased unexpectedly in January

There was an unexpected pick up in annual house price growth in the UK in January with the latest index showing a rise of 3.2% compared to 2.6% at the end of 2016.

The data from lender the Nationwide also show prices increased by 0.6% month on month, taking the average price of a home to £211,756.

‘The acceleration in annual house price growth is a little surprising, given signs of softening in the household sector in recent months,’ said Robert Gardner, Nationwide’s chief economist.

But he does not believe it is a sign of a sudden boom as surveyors report that new buyer enquiries have remained soft in recent months and activity has been subdued on both the demand and supply side of the market.

‘The flow of properties coming onto estate agents’ books has been more of trickle than a torrent for some time now and the lack of supply is likely to be the key factor providing support to house prices,’ he explained.

‘How the housing market performs in the year ahead will be determined in large part by developments in the wider economy. Brexit developments will remain important, though these remain hard to foresee,’ he pointed out.

‘We continue to expect the UK economy to grow at modest pace, with annual growth of 1% to 1.5% in 2018 and 2019. Subdued economic activity and the ongoing squeeze on household budgets is likely to exert a modest drag on housing market activity and house price growth, Gardner said.

‘Nevertheless, housing market activity is expected to slow only modestly, since unemployment and mortgage interest rates are expected to remain low by historic standards. Similarly, the subdued pace of building activity evident in recent years and the shortage of properties on the market are likely to provide ongoing support for house prices,’ he added.

Supply is going to be the key issue going forward, according to Russell Quirk, chief executive of Emoov. ‘While we remain a nation of aspirational home buyers and the level of those owning their own home has remained fairly robust over the years, their ageing population and the continued increase of the private rentals sector highlights a broken market, working against, and not for first time buyers in particular,’ he said.

‘The outlook for the economy is modest and both interest rates and unemployment are expected to remain low, but with as many sellers currently sitting on the fence as buyers, the severe lack of housing stock available for those looking to get on the ladder has been further exacerbated,’ he pointed out.

‘As a result, even in slower market conditions, the financial barrier to home ownership has continued to grow, putting it further out of reach for the average UK buyer,’ he added.

Sam Mitchell, chief executive officer of online estate agents HouseSimple, pointed out that some parts of the country are not facing supply issues. ‘Average house prices hit a record high in January as supply constraints continue to hinder the market. But it would be short sighted to simply say that house prices are rising because of, and only because of, a lack of supply,’ he said.

‘Across the UK, there are micro property markets seeing healthy price growth because houses are affordable and job prospects are good. Thriving regional business hubs are attracting skilled workers, many from London, because among other things, home ownership is a reality,’ he added.

Looking ahead he explained that there is a lot of conflicting Brexit news clouding the market and clouding buyer and seller decision making. ‘We are seeing a fair amount of caution from buyers. They are viewing a lot of properties and aren’t rushing into a purchase. Confidence is quite fragile, and it’s inevitable that what’s happening in the wider economy will be playing on their minds,’ he said.

‘The first time buyer stamp duty cut in the Autumn Budget should hopefully give the bottom end of the market a much needed confidence boost and help keep it moving. But it’s crucial for the longer term health of the property market that the Government makes positive and meaningful progress in trade talks with Brussels,’ he concluded.

It could be that an increasing number of would be home owners have been adopting a wait and see attitude but have now decided to make a decision and buy, according to Jonathan Hopper, managing director of Garrington Property Finders.

But even with the stamp duty abolition for most first time buyers, he still thinks this group is struggling with affordability. ‘Despite January’s fall in consumer price inflation, the average buyer’s salary still isn’t keeping up. The resulting fall in real wages means affordability remains a huge hurdle for many first time buyers,’ he explained.

‘Demand remains solid in many areas, especially those within commuting distance of London and in regional hotspots such as Manchester, and we expect this to drive prices up further in 2018,’ he pointed out.

‘That said, we should be wary of attributing the rise in prices to improving buyer sentiment alone. The low level of mortgage approvals and historically low levels of homes available for sale are constraining market activity and providing impetus to headline values,’ he added.

‘With buyers at all price points deeply wary of overpaying, it’s encouraging to see many of the first listings of the new year come onto the market at realistic price points. Some reality among sellers who want to move swiftly rather than wait months for a sale is just what the market needs to begin the new year on the right foot,’ he concluded.