House price growth cools in January as momentum eases across the UK market

29th January 2015

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Property prices rose by just 0.3% in January taking the annual gains to a 14 month low of 6.8% according to new numbers from Nationwide.

The lender’s data highlights  that price increases are currently being reined in by an appreciable moderation in housing market activity from the peak levels seen at the start of 2014.

While January’s move shows a slight uptick on December’s 0.2% gain, the year-on-year increase however fell from 7.2% in the previous month, 8.5% in November, 9% in October and a peak of 11.8% in June – the highest since January 2005.

Robert Gardner, Nationwide’s chief economist, said the reasons for the slowdown in activity remain unclear.

He added: “Unemployment has continued to decline and wage growth has started to outstrip increases in the cost of living for the first time since the financial crisis. Surveys suggest that consumer confidence remains elevated – a view corroborated by healthy gains in retail sales over recent months.

“Although house price growth continues to outpace income growth by a significant margin, affordability does not appear stretched at a national level.”

But evidence pointing to a continuing slowdown continues to gather as the latest data from the British Bankers Association show that mortgage approvals for house purchases retreated for a sixth month running in December, to a 20-month low of 35,677. Mortgage approvals in December were down by 27.6% from the 76-month high of 49,292.seen in January 2014.

Howard Archer 
chief European & UK economist at IHS Global Insight said: “We suspect that the weakening of housing market activity may be close to bottoming out and we see it picking up to a limited extent in 2015 from current levels.”

As a result Archer now expects house prices to rise by a solid but unspectacular 5% in 2015. This compares with the peak double-digit annual house price increases seen earlier in 2014.

In addition to the Stamp Duty Reform enacted in December, Archer believes support for housing market activity should come from a number of factors, namely elevated consumer confidence, high and rising employment, and still low mortgage interest rates.

“In addition, earnings growth finally appears to be firming and we expect it to gradually improve over the coming months. Meanwhile, limited supply of houses is likely to provide support to house prices in some regions over the coming months,” added Archer.

“Nevertheless, significant restraint on house buyer interest and prices is still expected to come from more stretched house prices to earnings ratios, tighter checking of prospective mortgage borrowers by lenders and the knowledge that interest rates will eventually start rising, albeit gradually.”

Gardner added: “If the economic backdrop continues to improve as we and most forecasters expect, activity in the housing market is likely to regain momentum in the months ahead. It is encouraging that the number of new homes built in England was up 8% in the year to the third quarter 2014. However, this is still 34% below pre-crisis levels and little over half the expected rate of household formation in the years ahead.”

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