There was a modest 0.1% fall in property prices in the UK in August while annual house price growth slowed to 2.1% from 2.9% in July, the latest index shows.
The report from lender the Nationwide also shows that stamp duty revenues have reached all-time highs in cash terms, reaching £12.8 billion in the 12 months to the second quarter of 2017, well above the £10.6 billion peak recorded in late 2007.
The slowdown in house price growth to the 2% to 3% range in recent months from the 4% to 5% prevailing in 2016 is consistent with signs of cooling in the housing market and the wider economy, according to Robert Gardner, Nationwide’s chief economist.
He pointed out that the economy grew by 0.3% per quarter in the first half of 2017, around half the pace recorded in 2016. The number of mortgages approved for house purchase moderated to a nine month low of 65,000 in June and surveyors have reported softening in the number of new buyer enquiries.
‘Nevertheless, in some respects the slowdown in the housing market is surprising, given the ongoing strength of the labour market. The economy created a healthy 125,000 jobs in the three months to June and the unemployment rate fell to 4.4%, the lowest rate for over 40 years. In addition, mortgage rates have remained close to all-time lows,’ he explained.
‘It may be that mounting pressure on household finances is exerting a drag. Wages have been failing to keep up with the cost of living in recent months and consumer sentiment has weakened. While measures of housing affordability are not particularly stretched at a UK level, pressures are evident in some regions, especially London and the South of England,’ Gardner added.
‘Ultimately, housing market developments will depend on wider economic performance. The UK economy slowed noticeably in the first half of the year, and there has been little to suggest a significant rebound in the months ahead. While employment growth has remained robust, household budgets are under pressure. This suggests that housing market activity will remain subdued,’ he said.
‘Nevertheless, constrained supply is likely to continue to provide support for house prices. The stock of homes on estate agents’ books remains close to 30 year lows and the number of new homes coming onto the market remains subdued. As a result, we continue to expect prices to rise by around 2% over 2017 as a whole,’ he concluded.
The cooling of the property market is no paradox when you factor in the impact of rising inflation, low wage growth and ongoing consumer uncertainty around the longer term impact of Brexit, according to Jonathan Samuels, chief executive officer of property lender Octane Capital.
‘Essentially, people are feeling the pinch and that will always impact property prices. But the property market can only cool so much given the ongoing lack of supply. When there are so few properties for sale and being built, prices can only go so low,’ he said.
‘The 3% surcharge on second homes and buy to let properties has been a major driver in surging stamp duty revenues. This has been one of the most fundamental changes to the UK property market for many years and its effects are already evident,’ he pointed out.
‘The punitive level of stamp duty at the higher end of the market has seen this area of the market cool down significantly. So while people are paying more, there have been far fewer transactions. At the higher end of the market, new stamp duty rates have affected countless transactions and so whether this is contributing to increased revenues is open to question,’ he added.
Lucy Pendleton, director of independent estate agents James Pendleton, pointed out August’s performance has matched that of May which saw the lowest annual growth rate since the Brexit vote, but added that the market is still outpacing the economy in general by some considerable margin.
‘Economic growth was running at only 0.3% in the second quarter so the housing market still has a solid lead. Robust stamp duty figures aren’t necessarily a sign of confidence. People are being forced to pay more and some markets are struggling because of it simply because it now costs too much to move. As soon as you get above £1.2 million it is causing a notable slowdown in transactions,’ she said.
