Slowdown in annual house price growth
House price growth in the UK slowed down in the year April, according to the UK’s largest building society.
Nationwide found that house prices in April rose by 4.9% year on year - down from an annual growth of 5.7% in the year to March.
It takes the average price of a house in the UK to £202,436 – up from £200,251 in March.
The lender – which bases its monthly data on mortgages it has approved – reports a surge in the number of residential property transactions in March of both mortgaged and cash purchases ahead of the additional stamp duty levy on second properties. There were 165,400 transactions during March, according to HM Revenue and Customs – 11% higher than the previous peak of 149,000 in 2007.
“It may be that the surge in house purchase activity resulting from the increase in stamp duty on second homes from 1 April provided a temporary boost to prices in March,” says Robert Gardner, Nationwide’s chief economist.
“However, it is possible that the recent pattern of strong employment growth, rising real earnings, low borrowing costs and constrained supply will tilt the demand/supply balance in favour of sellers and exert upward pressure on price growth once again in the quarters ahead.”
Mr Gardner also warns of the impact of further measures to curb enthusiasm for buy to let, which come into force next year.
He says: “House purchase activity is likely to fall in the months ahead, given the number of purchasers that brought forward transactions. The recovery thereafter may also be fairly gradual, especially in the buy-to-let sector, where a wealth of other policy changes, such as the reduction in tax relief for landlords from 2017, are likely to exert an ongoing drag.”
Land Registry’s figures show drop in transactions
In other news, the Land Registry has today published its market trend figures in England and Wales for March, which is based on completed house sales.
These reveal an annual price rise of 6.7%, putting the average house price at £189,901. Monthly house prices fell by 0.5% between February and March.
London had the greatest increase in its average property value over the past year ¬¬– up by 13.9% – and was the only area, along with the East, to experience any monthly growth, at 0.2%. In contrast, the North East had the only annual price fall – down -0.7%.
The number of completed house sales in England and Wales fell by 5% to 54,254, compared with 56,937 in January 2015.
Meanwhile, the number of properties sold in England and Wales for more than £1 million went up by 2% to 938 from 916 in February 2015.
Repossessions fell by 51% to 322 compared with 657 in January 2015; in London, the number of repossessions fell by 72% over the same period – down from 76 to 21.
Looking ahead to how Brexit may affect the property market, Property Partners’ Rob Weaver says: “No ifs, no buts. With just a few months’ warning, it was almost inevitable there’d be a dampening in April, in sharp contrast to a surge in activity in March with the knock-on effect on house prices.
“Where next is more difficult to judge. Despite strong employment, wage growth and cheap borrowing, there are jitters over whether we’re in or out of Europe.
“It’s likely this uncertainty will have a pause effect on prices in the lead up to June 23, with a fall in property transactions. But what is certain, there are fewer decent properties currently available on the market as buy-to-let landlords have sucked them up pre-April.”
Commenting on the Land Registry figures, Jeremy Leaf, a former RICS chairman and north London estate agent, says: “The month-on-month fall in the average house price is not a surprise as the market is gearing up for a change.
“However, bearing in mind the historic nature of these figures, we would have expected higher transaction levels as the stamp duty deadline approaches. But with the number of completed house sales in England and Wales falling by 5% in January compared with the same month last year, there does not seem to have been the stampede that many expected. It may be that investors and second homebuyers left it really late in the day and it is February and March’s figures that will show a significant uplift in transactions.
“A decline in number of property transactions continues to be a worry, as if people aren’t able to move in and out of the market when they want to, there will be an inevitable knock-on effect for the rest of the economy. On the ground, we want to see more balance between supply and demand.”
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
Investors who borrow money they use for investment and use the securities they buy as collateral for the loan are said to be “gearing up” the portfolio (in the US, gearing is referred to as “leveraging”) and widely used by investment trusts. The greater the gearing as a proportion of the overall portfolio, the greater the potential for profit or loss. If markets rise in value, the investor can pay back the loan and retain the profit but if markets fall, the investor may not be able to cover the borrowing and interest costs, and will make a loss. Also used to describe the ratio of a company’s borrowing in relation to its market capitalisation and the gearing ratio measures the extent to which a company is funded by debt. A company with high gearing is more vulnerable to downturns in the business cycle because the company must continue to service its debt regardless of how bad sales are.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.