Housing market stagnates with prices up just 0.6% year on year, down month on month

The annual rate of house price growth in the UK was below 1% for a sixth month in a row in the year to May 2019, the latest lender home index shows.

Year on year prices increased by just 0.6% to an average of £214,946 and month on month they fell by 0.2%, according to the data from lender the Nationwide.

However, Robert Gardner, Nationwide’s chief economist, said that new buyer enquiries and consumer confidence have remained subdued in recent months. ‘Nevertheless, indicators of housing market activity, such as the number of property transactions and the number of mortgages approved for house purchase, have remained broadly stable,’ he pointed out.

‘Housing market trends are likely to continue to mirror developments in the broader economy. While healthy labour market conditions and low borrowing costs will provide underlying support, uncertainty is likely to continue to act as a drag on sentiment and activity, with price growth and transaction levels remaining close to current levels over the coming months,’ he added.

But he acknowledged that the high level of deposits needed for many first time buyers is still a barrier even although first time buyer numbers reached 359,000 in the 12 months to March, just 10% below 2006 peaks, and the cost of home borrowing is still low.

‘Even though house prices remain high relative to average incomes, the cost of servicing the typical mortgage as a share of take home pay has remained close to or below long run averages in most parts of the country,’ he explained.

But he added that this has not been the case in London, where a period of rapid house price growth in the three years to 2015 means that monthly mortgage payments are unaffordable for a large proportion of the local population.

‘Outside of London and the South East, raising a deposit appears to be the main challenge for most prospective first time buyers,’ he said. Figures show that even in Scotland and the North, where property appears most affordable, it would still take someone earning the average wage and saving 15% of their take home pay each month more than five years to save a 20% deposit. In Wales and Northern Ireland, it would take prospective buyers nearly seven years, and almost eight for people living in the Midlands.

In the South of England, it would take an average earner a decade or more to amass a 20% deposit while in London someone earning an average income would take more than 15 years to save a 20% deposit on the typical London property, even longer than was the case before the financial crisis when it would have taken over 10 years.

Prices may have reached the limits of affordability, according to Mike Scott, chief property analyst with estate agent Yopa. He believes that house prices will continue to rise slowly. ‘The number of houses sold is holding steady, the supply of homes is still very limited, and the economic fundamentals remain strong, with low unemployment, low mortgage interest rates, rising average earnings and good mortgage availability,’ he pointed out.

‘It is therefore likely that house prices will continue to rise slowly, roughly in line with rises in earnings, until something changes. An increase in the proportion of the house price that you can borrow on a mortgage would reduce the deposit requirement and lead to renewed house price growth, whereas a jump in interest rates or a downturn in the wider economy could trigger a fall in house prices,’ he added.

Marc von Grundherr, director of Benham and Reeves, also predicts slow growth. ‘While Brexit continues to hang over the market savvy buyers will do all they can to knock down the price of a property and save themselves some money,’ he said.

‘We may continue to see house price growth creep up at a slower rate than the norm, but it will continue to creep up and any investment now will see a return of one kind or another in the medium to long term,’ he explained.

Slowing growth is a trend likely to stay for some considerable time, according to Guy Harrington, chief executive officer of residential and commercial lender Glenhawk, as there are a number of factors dragging on the housing market, including Brexit, the vote for a new Prime Minister and the potential of a general election in the not too distant future.

‘Despite this unsettling backdrop, a combination of the low interest environment, ongoing government support, sluggish house price performance and willing lenders presents a great opportunity for buyers,’ he said.

Gareth Lewis, commercial director of property lender MT Finance, believes that valuers are being relatively cautious because they know they will be held to account if they are too bullish. ‘So while sentiment is good out there in terms of people transacting, there is still some relative caution with valuers looking at comparables more carefully,’ he said.