As 2017 draws to a close, the pattern of slower house growth – both monthly and annually – continues, along with uncertainty about how Brexit will affect the housing market.
While the UK House Price Index – which covers October 2017’s completed property transactions – reports house price growth of 4.5%, by the time you get to December’s Rightmove report on asking prices for December, annual house price growth is a mere 1.2%. Halifax’s and Nationwide’s indices for November remain somewhere in between, with annual house price growth of 3.9% and 2.5% respectively.
How house prices will perform in 2018 depends very much on individual regions and on which sector of the market buyers are searching. The London housing market – and premium-priced properties in general – seem to be going through a period of re-adjustment, with homeowners needing to manage their expectations, according to Rightmove. Sellers need to be more pragmatic and realistic if they are to sell their properties, which will have a knock-on effect on the rest of the market.
There has been much conjecture about the Chancellor’s tax break for first-time buyers, announced in the Autumn Budget, and how helpful it will be. It’s too early to tell – but the general view is that while it’s good news, it won’t have a huge impact except in pricier areas such as London and the South East.
Key stats at a glance
- UK House Price Index for October 2017: House prices up by 4.5% annually. Average price of a UK property: £223,807. Monthly change: -0.6%.
- Halifax House Price Index, November 2017: House prices up by 3.9% annually. Average price of a UK property: £226,821. Monthly change: +0.5%.
- Nationwide House Price Index, November 2017: House prices up by 2.5% annually. Average price of a UK property: £209,988. Monthly change: +0.1%.
- Rightmove House Price Index, December 2017: Asking prices up by 1.2% annually. Average asking price of a UK property: £302,865. Monthly change: -2.6%.
The latest figures from the UK House Price Index (UK HPI) for October shows an annual price rise of 4.5% over the year, which means the average property in the UK costs £223,807.
Prices have risen by 4.7% in England, with a monthly fall of 0.6% since September and an average property price of £240,860.
London saw the lowest annual house price growth – at 2.1% and with a monthly price fall of -0.9%. Other regions that witnessed a monthly drop in prices were the North West (-2.0%), West Midlands (-1.1%), South East (-0.5%), and the North East (-0.1%).
Homeowners in the East Midlands experienced the greatest rise in average property prices over the year – up by 7%, while those in the North West saw the biggest drop – down by -2%.
‘London homeowners are losing money’
Commenting on the data, Lucy Pendleton, director of independent estate agent James Pendleton, points out that Londoners are worst hit by current falling prices.
She says: “The East Midlands and South West have still got their dancing shoes on, while the traditional trailblazer, London, continues to lag behind and has been cooling at below the UK’s average growth rate for nearly a year now.
“In fact, that slowdown accelerated in the capital in October, when homeowners were already being hit over the head by inflation. Londoners are losing money in real terms because inflation is running at 3%.”
However, Jonathan Samuels, chief executive of property lender Octane Capital, points out that London house prices are still “stratospheric” when compared with elsewhere in the UK.
He says: “London's slowdown is no fall from grace, just a necessary correction following the exuberant price growth of a few years ago.
"Prices in certain London boroughs are still stratospheric compared to other areas of the country. The fact that you can still buy 15 houses in Burnley for the price of just one in Kensington and Chelsea is a case in point.
"While transaction levels are relatively low overall, it's hard to see the average UK growth rate falling much below its current level. The sheer lack of supply means price growth could hover around 5% for some time to come.”
‘Glad to see the back of 2017’
Halifax reveals that house prices in the three months to November were 3.9% higher than in the same quarter a year ago. It reports that house prices were up by 0.5% since October with the average price now £226,821 – the fifth consecutive monthly price rise.
Alex Gosling, chief executive of online agent HouseSimple.com, says: “These figures suggest a housing market in remarkably good health, but low supply levels continue to distort the real picture.
“The property market's not on its knees by any means, but it needs a spark from somewhere. Market activity has dropped off, which it tends to do the closer we get to Christmas. But it's definitely dropped off earlier than normal this year. Buyers are viewing, but when the same properties are coming up on searches every week, and very little new stock is being listed, there's not a great deal of enthusiasm to take it beyond the viewing stage.
“Hopefully, the Chancellor's Budget decision to cut stamp duty for first-time buyers will give the bottom end of the market the energy boost it desperately needs. But if homeowners further up the chain aren’t selling, there won't be enough affordable properties coming on to the market. And the government's plan to build more affordable homes won’t solve the supply crisis today.”
“The property market will be glad to see the back of 2017 – a year when it has had to cope with Article 50 being invoked, a calamitous general election, a rate rise and a constant stream of negative Brexit news. Roll on 2018,” he adds.
Stamp duty giveaway ‘not a silver bullet’
Nationwide reports that the annual rate of house price growth went up by 2.5%, the same rate as in October, with prices up by just 0.1% over the month and an average house price of £209,988.
Commenting on the stamp duty break for first-time buyers announced in the Budget, Robert Gardner, Nationwide’s chief economist, says it is likely to have “only a modest impact on overall demand”.
He explains: “In many regions, first-time buyers already paid little or no stamp duty as the price of the typical first-time buyer property was below the previous threshold of £125,000.
“The potential savings are more substantial for borrowers where house prices are higher, especially in London and the South East. However, as the Office for Budget Responsibility (OBR) noted, some of the benefit is likely to be passed on to existing homeowners through higher house prices, though overall impact on prices is likely to be very modest (the OBR estimates property prices may go up by around 0.3% in 2018).”
Jonathan Hopper, managing director of Garrington Property Finders, agrees: “No one should expect the Chancellor’s stamp duty giveaway to be a silver bullet. As the Nationwide’s analysis shows, outside London it will only affect a tiny minority of first-time buyers.
“More importantly, stimulating demand at the bottom end of the market won’t help much if the market remains blocked at higher price points. To function properly, the market relies on the whole chain working smoothly, with buyers at all levels able to move up the ladder. Demand remains robust so it’s premature to talk of the market seizing up, but it’s far from healthy.
“Against this backdrop we’re seeing opportunistic buyers sense there’s blood in the water in London and other former hotspots where prices have corrected most sharply.
“Meanwhile among those looking for a home rather than an investment, we’re seeing a steady flight of capital from the most overheated regions to those that offer better affordability.”
‘A tangled web of differing supply and demand’
Rightmove has forecast just 1% average annual growth in asking prices from newly marketed properties in 2018, though it predicts growth of 3% for first-time buyer properties and of 2% for second-stepper homes. It’s bad news for premium properties, with the online portal predicting an average drop in house prices of 2%, fuelled by a re-adjustment in London.
It reports asking prices in December being up annually by an average of 1.2%. However, over the month since November, asking prices have fallen by 2.6% – that’s equivalent to a £8,178 drop.
Miles Shipside, a director and housing market analyst at Rightmove, points out that homeowners have had a good run, with every year since 2011 seeing a rise in asking prices, and the national average rise over those six years being 30.9%, equivalent to 4.6% per year.
“2018 will continue the 2017 trend by being a real mixed bag of different price pressures both up and down, but the net result is that we forecast another year of a slowing in the pace of price rises,” he says.
“Increasingly stretched buyer affordability, exacerbated as intended by tighter lending criteria and increased stamp duty for second-home owners, is taking its toll on upwards price pressure. It is aided by a slowdown in the higher-end markets, with the influence of a re-adjusting London being a weighty factor on the national averages.
“The overall price growth slowdown that we are predicting for 2018 masks a somewhat tangled web of differing supply and demand factors, some favouring price increases and some in favour of price falls.”
However, Paul Young, co-founder of online agent Settled, puts the dip in house prices down to the festive season, saying: “Though house prices have dipped in this last report, this is more a reflection of the time of year, rather than a wider market trend.
“Boxing Day is one of the biggest days of the year for sites such as Rightmove and Zoopla, so as usual, we would expect increased activity as the market picks up after the Christmas period. Looking ahead, recently introduced changes to stamp duty may provide a further incentive for first-time buyers, particularly in London and the South East.”
Halifax House Price Index – This UK-wide index is based on the house purchase price at the mortgage approval stage. It calculates the annual change as an average for the latest three months compared with the same period a year earlier as it says its figures provide a better picture of the underlying trend compared to a monthly year-on-year number as they smooth out any short-term fluctuations.
Nationwide House Price Index – The data for this index for the whole of the UK is drawn from Nationwide’s house purchase mortgage lending at the post-survey approvals stage.
Rightmove House Price Index – The data is compiled from the asking prices of properties when they first come on to the market via over 13,000 estate agency branches listing on Rightmove.co.uk. The sample includes up to 200,000 homes each month – representing circa 90% of the market.
UK House Price Index – The UK HPI uses house sales data from HM Land Registry, Registers of Scotland, and Land and Property Services Northern Ireland and is calculated by the Office of National Statistics.