House prices cool but for how long?

28th November 2014


There is more evidence that the UK property market is cooling off as house price growth in November fell to 0.3%.

The latest figures from Nationwide’s house price index show the average cost of a property increased 0.3% in November, down from 0.5% in October, and now costs £189,388.

However, the price of a property is still 8.5% more than it was in November last year.

Robert Gardner, chief economist at Nationwide, said there had be a slowdown in a number of housing market indicators, not just house prices.

‘The annual pace of house price growth continued to soften in November, falling from 9% in October to 8.5%, marking the third consecutive month where annual growth has moderated. This is despite house prices increasing by 0.3% month on month in November,’ he said.

‘Housing market activity levels have remained relatively weak in recent months. The number of mortgages approved for house purchase in September was almost 20% below the level prevailing at the start of the year and 27% below the long-term average.

‘Similarly, housing market turnover rates are well below long-term averages. For example, the number of mortgage transactions is currently equal to around 4% of the housing stock – well below the long-run average of 6%.’

Future strengthening

While first-time buyers may be pleased house prices are cooling, it may not last for long as the economy continues to improve.

‘There is something of a disconnect between the slowdown in the housing market in recent months and broader economic indicators, which have remained relatively upbeat,’ said Gardner. ‘While cooling in the London market is part of the story, this is unlikely to be the main explanation for the slowdown.

‘In particular, the labour market has continued to improve, with employment rising strongly and the unemployment rate falling sharply in recent months – at 6% in the three months to September, the unemployment rate is well below the 7.6% prevailing over the same period last year.’

On top of this Gardner said consumer sentiment ‘remains elevated’ and that retail sales growth and new car registrations show households are more confident.

Although the government and Bank of England have been concerned about affordability of the housing market and have taken steps to limit high loan-to-income lending, Gardner is less concerned.

‘Affordability does not appear overly stretched, at least at the UK level, with first-time buyers continuing to represent an unusually high proportion of mortgage activity and with typical mortgage payments as a share of average income close to the long run average,’ he said. ‘Historically low mortgage rates have helped to mitigate against the fact that house prices have been outstripping income growth.’

While the near-term housing market may still be cooler than recently experienced, it is expected to pick up again.

‘Forward looking indicators, such as new buyer enquiries point to further softness in the near-term,’ said Gardner. ‘However, if the economy and the labour market remain in good shape and mortgage rates do not rise sharply, activity is likely to pick up in the quarters ahead.’



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