House prices in the UK continue their upward trajectory, going up by 7.2% over the year to December 2016, with the average house costing £219,544.
That’s up 1.4% on November’s figure, according to the Land Registry’s UK House Price Index, which is based on house transactions.
In England, annual house price growth was a little higher, at 7.7%, with the average property price at £236,424, while properties in Wales lagged behind with a price rise of 4.7% over the year and an average price of £148,177.
Like last month, house prices in the East of England have shot up over the past 12 months – up by 11.3%. This contrasts with the North East, which had the lowest annual house price growth at 4.1% – but things are picking up in the region as the North East experienced a 2.3% increase in prices between November and December.
House prices in London went up by 7.5% over the year, with an average price of £483,803 – down on the 8.1% annual rise seen in November.
House price hikes versus wage growth
Richard Snook, senior economist at PwC, says: “The average price of a UK home is now £220,000 with the typical homeowner making a £15,000 capital gain over the last 12 months, compared to the median UK full-time salary of £28,000.
“While good news for existing homeowners, however, this further rise in property prices – at four times the rate of consumer price inflation and more than double average earnings growth – will take home ownership even further out of reach for Generation Rent.”
However, Mr Snook believes that the property market will slow down over 2017, predicting growth of between 2% and 6%.
Impact of Housing White Paper
He adds: “There are several headwinds affecting the housing market over the next couple of years: uncertainty related to Brexit, rising consumer price inflation with consequent downward pressure on real earnings growth and, in the longer run, the potential for a supply increase due to initiatives in the White Paper.”
Jeremy Duncombe, director, Legal & General Mortgage Club, also believes that government plans to build more homes will help regulate the market. He says: “With the White Paper the government has clearly recognised the supply-demand problem and the impact that it is having on both prospective homeowners and renters too. The sooner that recognition and the promises made to build more homes can be turned into action, the sooner we can really address the housing crisis and create a fairer market in which property prices rise in line with wages.”
First-time buyer numbers are on the up
Meanwhile, the Halifax House Price Index, which looks at January 2017’s prices, reports an average house price that is only slightly above the Land Registry figure – at £220,260. It reports house prices rising at a slower rate. Prices went up of 5.7% annually in January, but this is down from 6.5% in December and 10% in March 2016.
In a separate report, Halifax reveals that the number of first-time buyers is estimated to have risen by 7% in 2016 to 335,750 – the highest level since the start of the financial crisis in 2007.
Martin Ellis, Halifax housing economist, says: “The quarterly and annual rates of house price growth remain robust even though they are lower than in spring 2016.
“Nonetheless, weaker economic growth and increasing pressure on spending power, along with affordability constraints, are expected to dampen housing demand, resulting in some downward pressure on annual house price growth during the year,” he adds.
However, Rob Weaver, director of Investments at crowdfunding site Property Partner, disagrees: “Despite a slight dip in January, the trajectory for house prices over the long term looks more likely to be upwards.
“Property prices have been remarkably stable even with multiple tax changes and the spectre of Brexit. The harsh reality for those trying to buy is that there’s a critical shortage in supply, which is underpinning the market.
“Ultra-low interest rates are also helping to stimulate demand from first-time buyers or those hoping to move up the ladder,” he adds.
Housing market is ‘clouded’
As is generally the case, Nationwide’s data for January 2017 was more subdued, reporting annual growth of 4.3% and an average house price of £205,240 – up by just 0.2% since December 2016.
Robert Gardner, Nationwide's chief economist, says that the outlook for the housing market remains “clouded”, reflecting the uncertainty about how the UK economy will fare.
He says: “On the one hand, there are grounds for optimism. The economy has remained far stronger than expected in the wake of the Brexit vote. However, there are tentative signs that conditions may be about to soften. Employment growth has moderated, and while wage growth has edged up in recent months, in real terms (i.e. after adjusting for inflation), earnings growth has already slowed.
However, he continues to predict “a small rise in house prices of around 2% is more likely than a decline over the course of 2017”. Nationwide puts this down to low borrowing costs and the dearth of homes on the market.
Alex Gosling, chief executive of HouseSimple.com, says: "A 'broadly stable' January is no bad thing after the past six months of economic uncertainty we've faced.
"Many were expecting us to be starting the New Year sifting through the remains of a property market, but the market has actually stood up remarkably well in the face of some pretty strong economic headwinds.”