House price growth slowed in May as election uncertainty stifled sales

3rd June 2015


Annual house price growth slowed to 4.6% in May from 5.2% a month earlier, the latest figures from Nationwide Building Society reveal.

Month-on-month growth was 0.3% in May, as the average house price reached £195,166, up from £193,048 in April.

Robert Gardner, Nationwide’s chief economist, says:  ” Annual house price growth is now running at less than half the pace prevailing in mid-2014.

“Over the longer term we would expect house price growth to converge with earnings growth, which has typically been around 4% per annum. However, much will depend on supply side developments – in recent years the rate of building activity has remained well below that required to keep up with population growth.”

Cash transactions remain relatively high

Gardner adds: “We estimate that the share of cash purchases in the housing market reached an all-time high of 38% in Q1 2015. Continued healthy demand from cash buyers has helped to support transaction levels in recent quarters, since mortgage lending has remained relatively subdued. For example, in Q1 2015 overall housing transactions were down by around 5% compared with Q1 2014, while mortgage completions were around 11% lower.

“Though the 38% share was a record, it was only modestly above the average of 36% prevailing in 2014. The significant rise in the share of cash transactions occurred in the wake of the financial crisis, where a tightening in credit conditions and a deterioration in the labour market limited the number of people able to buy with a mortgage (developments which would have had much less of an impact on cash buyers). ”

Slowdown is “good news”

Rob Weaver, head of investments, property crowdfunding platform Property Partner, says: “The ongoing slowdown in the annual pace of house price growth is good, not bad, news.

“A year or two ago prices were rising at an unsustainable rate and if that had continued, things would have unravelled just as quickly. The kind of growth we are seeing at present is positive without being disproportionate.

“For house prices to consistently converge with earnings growth, however, may be asking a lot given the systemic lack of supply. And although the percentage of cash purchases has reached an all-time high, that level may well fall given this week’s strong mortgage approvals data.

“2015 is not going to be a 2014 in terms of house price growth but with low interest rates and living costs, and strong employment, it’s certainly not going to underperform.”

The election effect

Jonathan Hopper, managing director of the buying agents Garrington Property Finders, says:   “May was the month when the housing market reset its compass, and these figures confirm that its upward price momentum was unchecked.

“Political uncertainty in the run-up to the election led many buyers – especially those at the top end of the market – to hold off on their purchases.

“Many sellers too sat on their hands, and the resulting low number of transactions meant that pre-poll prices were briefly held in limbo.

“But in the weeks since the election result the blockage has cleared, with the market buoyed by thousands of new instructions and newly confident buyers.

“For the Nationwide’s May figures to show such steady price increases gives a flavour of further growth to come. We suspect it’s only a matter of time before its national average price hits the symbolic £200k mark.

“Vendors in some areas are still being ambitious with their pricing, given that many buyers are motivated but more sober in their offering behaviour than they were in the last boom.

“But buyer demand and confidence are robust, and in the current free-flowing market this bodes well for a summer of continued strong progress.”

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