Annual house price growth remains below 1% for fifth consecutive month

The latest report from Nationwide shows little movement in UK house prices at the start of Q2.

Related topics:  Property
Warren Lewis
1st May 2019
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According to figures released this morning, annual house price growth settled at 0.9% during April. After taking account of seasonal factors, this was a 0.4% rise month-on-month.

Robert Gardner, Nationwide's Chief Economist, said: “UK house price growth remained subdued in April, with prices just 0.9% higher than the same month last year.

Indicators of housing market activity, such as the number of property transactions and the number of mortgages approved for house purchase, have remained broadly stable in recent months, even though survey data suggests that sentiment has softened. Measures of consumer confidence weakened around the turn of the year and surveyors report that new buyer enquiries have remained subdued.

While the number of properties coming onto the market has also slowed, this doesn’t appear to have been enough to prevent a modest shift in the balance of supply and demand in favour of buyers in recent months. April marks the fifth month in a row in which annual house price growth has been below 1%.

First time buyer numbers recovering

While the ongoing economic uncertainties have clearly been weighing on consumer sentiment, this hasn’t prevented further steady gains in the number of first time buyers entering the housing market in recent quarters.

First time buyer numbers have been supported by the strength of labour market conditions, with employment rising at a healthy rate, and earnings growth slowly gathering momentum.

While house prices remain high relative to average earnings, low mortgage rates have helped to support mortgage affordability. Indeed, raising a deposit appears to be the major barrier for prospective first time buyers, since the cost of servicing the typical mortgage remains in line with or below long-run averages as a share of take home pay in most regions of the UK.

The exception is in London and parts of the south of England where affordability pressures are more acute, and the monthly cost of servicing a mortgage, as well as raising a deposit, poses a greater challenge.

Indeed, comparing the incomes of actual first time buyers in 2018 with average incomes in each region highlights how affordability pressures vary across the UK.

In 2018, first time buyer incomes were in line with or below average incomes in most regions. However, in the East, South East and London, first time buyers’ incomes were significantly higher than average incomes in those regions (60% higher in London), illustrating the extent to which many prospective buyers are priced out of the market in those areas.

Alastair McKee, Managing Director of One77 Mortgages, commented: “While annual house price growth remains below one per cent for the fifth month in a row there has been positive movement in the rate of growth so far this year, and it’s likely that we will see an end to this negative trend come May’s index.

Despite the large financial barriers, it's buyer and seller indecision that continues to stifle the wider market rather than the initial cost of buying. However, it is extremely encouraging to see the charge against this being led by the affordability of mortgage products and our first-time buyers, in particular.”

Marc von Grundherr, Director of Benham and Reeves, commented: “Given the previous years of outstanding house price growth, we could be forgiven for thinking that anything below the one per cent mark where the annual rate is concerned, is entering life support territory.

This simply isn’t the case and while the rate of price growth has paused for breath, it remains within easy reach of wider targets for the year as we enter just the second quarter.

Without the sufficient market fuel of buyer demand and replenished stock levels the market may struggle to make it out of second gear, however, it’s likely that we will see conditions accelerate through the spring and summer seasons with some more positive growth levels registered despite the continued uncertainty of Brexit.”

Gareth Lewis, commercial director of property lender MT Finance, says: "It is hard to see the suppressed growth that Nationwide reports changing in the foreseeable future. However, the fact that there is any growth in values at all is encouraging, given what is going on in the wider political arena, and this level is more sustainable than the spikes we have seen previously, which have such an impact on affordability and people’s ability to buy.

Subsequently, first-time buyer numbers continue to improve, which is hugely positive. The market needs first-time buyers so that second steppers can move up the ladder to bigger homes.

As well as first-time buyers, there are more affordable opportunities for property investors looking for value to grow their portfolios. There is a lot more opportunity to buy property, which will go into the private rental market and offer more choice for those who can’t buy for now but have to rent while they save for a deposit."

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: "Soft growth in the last set of figures from Nationwide is continuing and confirmed on the high street. Clearly, Brexit uncertainty in the minds of homebuyers is still outweighing almost record low mortgage rates and employment numbers, as well as improved affordability.

A glimmer of good news is that first-time buyers are taking advantage, particularly of Help to Buy and deposits from the Bank of Mum and Dad, not forgetting reduced competition from landlords. However, landlords leaving the sector has meant some hardening of rents which has made deposit saving, we are finding particularly in London, more difficult, and which is making that illusive first purchase trickier.’

Mark Harris, chief executive of mortgage broker SPF Private Clients, says: "While the housing market may be subdued, the lending side is incredibly competitive. Supply for mortgages is outstripping demand, which is keeping a lid on any mortgage rate increases as lenders compete with each other to attract business.

First-time buyers are in their sights as they are the lifeblood of the market and lenders are keen to attract their business with a wide choice of high loan-to-value deals at competitive pricing."

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