Annual House Price Growth Down from 2.6% to 0.5%

Annual house price growth has dropped from an average of 2.6% in December 2017 to just 0.5% in the same month of last year, according to the latest House Price Index from Nationwide.

In December, annual house price growth fell to an average of 0.5%, from 1.9% in November. Month-on-month, the typical property value decreased by 0.7%, taking the average price to £212,281.

Robert Gardner, the Chief Economist at Nationwide, says: “UK house price growth slowed noticeably as 2018 drew to a close, with prices just 0.5% higher than December 2017.

“This marks a noticeable slowdown from previous months, where prices had been rising at a c.2% pace. However, it is broadly in line with our expectations (since the start of the year, we had been anticipating a price rise of c.1% in 2018).”

He continues: “Indicators of housing market activity, such as the number of property transactions and the number of mortgages approved for house purchases, have remained broadly stable in recent months, but forward-looking indicators had suggested some softening was likely.

“In particular, measures of consumer confidence weakened in December, and surveyors reported a further fall in new buyer enquiries towards the end of the year. While the number of properties coming onto the market also slowed, this doesn’t appear to have been enough to prevent a modest shift in the balance of demand and supply in favour of buyers.”

Uncertainty dragging the market

Gardner looks at the causes of the decline: “It is likely that the recent slowdown is attributable to the impact of the uncertain economic outlook on buyer sentiment, given that it has occurred against a backdrop of solid employment growth, stronger wage growth and continued low borrowing costs.

“Near-term prospects will be heavily dependent on how quickly this uncertainty lifts, but, ultimately, the outlook for the housing market and house prices will be determined by the performance of the wider economy – especially the labour market.”

He points out: “The economic outlook is unusually uncertain. However, if the economy continues to grow at a modest pace, with the unemployment rate and borrowing costs remaining close to current levels, we would expect UK house prices to rise at a low single-digit pace in 2019.”

Mixed picture across regions

Gardner assesses the markets in regions across the UK: “Amongst the home nations, Northern Ireland recorded the strongest growth in 2018, with prices up 5.8%, though Wales also recorded a respectable 4% gain. By contrast, Scotland saw a more modest 0.9% increase, while England saw the smallest rise of just 0.7% over the year.

“One of the more prominent regional trends in 2018 was the further narrowing of the north-south house price divide in England. Price growth in the south (London, Outer Metropolitan, Outer South East, East Anglia, South West) moderated throughout the year, while, in the northern regions (the North, North West, East and West Midlands, and Yorkshire and the Humber), price growth remained broadly stable in the 3% to 4% range.”

He isn’t surprised to have seen this: “This trend was not entirely unexpected, however, as it followed several years of sustained outperformance by the south (especially London and Outer Metropolitan), which left affordability more stretched in these areas.

“Indeed, even though house prices have been rising more quickly in the north of England since Q2 [the second quarter of] 2017, price levels are still significantly higher in the south. The price of a typical home in the south of England (£329,240) is still almost double that in the north (£166,642).”

Quarterly house price growth

Alongside its monthly data for December 2018, Nationwide has released its latest quarterly house price statistics, for Q4 2018, covering the three months to December.

Regional house price performance was slightly more varied over 2018, compared to 2017, although, outside of London and the South East, all regions continued to record annual house price growth.

Northern Ireland saw a noticeable pick-up in price growth and was the top performing region of 2018, at an average increase of 5.8%.

Wales also outperformed the UK average, with prices up by 4% over 2018 (compared to a 3.3% increase in 2017). Meanwhile, price growth in Scotland remained relatively subdued, with an average year-on-year rise of 0.9%.

The Outer Metropolitan was the weakest performing region, with prices down by an average of 1.4% over the year. London also continued to see modest price falls, with values decreasing by 0.8% during 2018 (the sixth consecutive quarter in which the capital has recorded an annual house price decline).

The average house price in England fell by 0.1% quarter-on-quarter in Q4 2018, with values up by 0.7% over the year as a whole.

For the second year running, price growth in northern England exceeded that in southern England. While most regions saw a softening in price growth in Q4, overall prices in northern England were up by 3% annually.

Meanwhile, in southern England, both London and the Outer Metropolitan regions continued to see prices decline year-on-year, leading to a slight overall decrease in the south, of 0.2%.

However, looking at price levels relative to 2007 peaks, there is still a significant divide. In Yorkshire and the Humber, the North West and North, prices are still close to 2007 levels, while, in London, they are more than 50% higher.

Comments

Lucy Pendleton, the Founder Director of independent estate agent James Pendleton, comments on the report: “Britain’s almost back to square one, as Brexit delivers a lost year.

“The Nationwide’s annual prediction wasn’t anything to write home about, but the UK has still undershot that by half. House prices soldiered on throughout 2018, and then threw their arms up and crawled over the line with just yards to go.

“Brits’ attitude to the market this year has been mixed, with plenty of twists and turns, but, ultimately, the big picture has come home to roost. You can thank politicians for that. Forward guidance from the Bank of England has been at a historical high, but Brexit is the spook that just won’t allow confidence to rise to more than a slow walk.

“A slew of buyer incentives has still resulted in a market at a virtual standstill. It’s hard to imagine what would have happened without them. The UK would certainly have found itself taking a big backward step. This is going to put incredible pressure on those in power to keep greasing the wheels with Stamp Duty reliefs and Help to Buy, even though many believe they are counterproductive and slightly dangerous ways of fanning the flames of house price growth in the long-term.”

Kevin Roberts, the Director of Legal & General Mortgage Club, also says: “Throughout 2018, there was a steady slowdown in annual house price growth. Rather than the 4-5% rises of the past, October saw house price inflation fall to just 1.6%. This sustainable growth has helped aspiring homeowners, with recent figures showing more first time buyers climbed onto the property ladder in the past year than any other time since 2006.

“Innovation in the mortgage market is also helping, giving borrowers a greater choice of products than ever before, and schemes that help younger buyers, like Help to Buy and Shared Ownership, continue to support those who cannot rely on a bank of mum and dad.

“Despite wider political uncertainty, as we enter 2019, there is clearly a lot to be cheerful about in the housing market and we hope to see even an even greater number of buyers take their first steps onto the ladder.”