UK HPI: Average house price growth at lowest levels since 2013

The latest data from the government's official house price index for May has revealed that average house prices in the UK increased by 3.0% in the year to May 2018 (down from 3.5% in April 2018).

Related topics:  Property
Warren Lewis
18th July 2018
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According to the report, this is its lowest annual rate since August 2013 when it was also 3.0%. The annual growth rate has slowed since mid-2016 and has remained under 5%, with the exception of October 2017, throughout 2017 and into 2018.

This drop in UK house price growth is driven mainly by a slowdown in the south and east of England. The lowest annual growth was in London, where prices decreased by 0.4% over the year. This is the fourth consecutive month that London house prices have fallen over the year.

The average UK house price was £226,000 in May 2018. This is £6,000 higher than in May 2017 and unchanged from last month. On a seasonally adjusted basis (series available in data downloads), average house prices in the UK decreased by 0.2% between April 2018 and May 2018, compared with an increase of 0.4% in average prices during the same period a year earlier (April 2017 and May 2017).

House Price Index, by property type

Across the UK, all houses showed an increase in average price in May 2018 when compared with the same month in the previous year. Detached houses showed the biggest increase, rising by 4.6% in the year to May 2018 to £344,000. The average price of flats and maisonettes were unchanged in the year to April 2018 (0.0%) at £203,000, the lowest annual growth of all property types. Weaker growth in UK flats and maisonettes was driven by negative annual growth in London for this property type. London accounts for around 25% of all UK flats and maisonette transactions.

Alan Collett, fund manager at Hearthstone Investments, comments: “We are finding that there are opportunities for sellers in the current market as the number of houses coming up for sale remains relatively low, which is keeping property prices stable across most of the UK. We sold a property last month having received an offer at the asking price in under a week.

We are also seeing considerable regional variations in house prices with, as the ONS figures show, homes in the Midlands continuing to enjoy rising valuations, while properties in London are facing downward pressure on price. Yet even in London there are areas with rising prices and these local variations between different towns and suburbs within the regional variations can provide opportunities for investment buyers who fully research the market.

The ONS rental index agrees with our experience that the private rental sector remains resilient. The issue of high demand for rental properties and a dearth of decent modern properties to rent is not going to be solved overnight, meaning good landlords are seeing continued interest from long-term tenants. We currently have a 96.5% occupancy rate of our properties and recently saw reservations made by tenants on four newly acquired houses in Essex within two weeks of marketing beginning.”

Russell Quirk, founder and CEO of Emoov.co.uk, had this to say: “A reduction in buyer enquiries and a fall in transaction levels, is always going to bring a slow in price growth as a direct consequence. This has largely been driven by a lack of housing stock reaching the market as UK sellers adopted the wait and see approach.

However, we are starting to see market activity heighten on the supply side and it won’t be long before this filters through to potential buyers. While the demand-supply seesaw is finely poised at the moment, once it tips and buyer interest overtakes the stock available, price growth will inevitably pick up the pace and return to previous levels.

This is already apparent in areas ahead of the trend and it isn’t just in areas with a more affordable price tag. While the likes of Hyndburn, Wyre Forest and Inverclyde are seeing some of the strongest price growth month on month, they’re joined by Stratford-upon-Avon, Rutland and Tower Hamlets where the average price tag is well over £300,000.

In addition, while annual price growth as a whole may have slumped to just 3%, there are a wealth of areas the length and breadth of the UK enjoying double-digit price growth on an annual basis.”

Mike Scott, chief property analyst at Yopa, says: "The official government house price index for May shows a steady market, in line with other recent reports. The annual rate of increase continues to fall, and house prices in May were just 3 per cent higher than in May last year. April saw the first significant monthly increase since August 2017, with prices rising by nearly 1 per cent, but May’s prices are barely up on the month at just 0.1 per cent. This official index uses data for completions of home sales, and so while it is definitive it tends to run a few months behind other reports based on data from earlier in the transaction process. This slowdown for May probably reflects the slowdown that we have already seen in March and April, due to the bad weather in early spring.

June, July and August last year all saw good rates of increase, so as these drop out of the annual rate of increase we can expect that it will continue to fall until August of this year, ending up with an annual rate of between 1 and 2 per cent, which will probably then hold at that level for the rest of the year. May’s average price of £226,351 was only 0.4 per cent ahead of the August 2017 figure of £225,512.

Several regions are continuing to experience stronger growth, led by the East Midlands where prices are 6.3 per cent higher than at this time last year. Other regions doing better than the average 3 per cent annual increase are the West Midlands (+5.0%), Scotland (+4.9%) and the South West (+3.9%). Only London is falling, with a decrease since May 2017 of 0.4 per cent, which is likely to get worse in the next few months since London's prices are down by 1.6 per cent on August last year."

Jonathan Samuels, CEO of the property lender, Octane Capital, said: "The South East and above all London are acting like a deadweight on the broader UK housing market, dragging prices down to a five-year low.

The 0.2% fall in prices between April and May is a fair portrayal of the UK property market as a whole, namely one that is moving slowly but surely south. While the jobs market is robust and mortgage rates highly competitive, inflation has dug in its heels, with many households continuing to feel the squeeze.

Outright Brexit bedlam will also dampen what little morale is left among buyers and sellers alike, so expect more of the same in the months ahead. For many people, a time of absolute political turmoil is not the ideal time to transact.

The one upside is that a time of such uncertainty always creates opportunity for savvier property investors. While owner-occupiers might be lying low, developers and professional property investors are increasingly active."

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