Annual house price growth remains below 1% for the 11th consecutive month

Warren Lewis
29th October 2019
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A slight rise of 0.2% on the month with annual growth settling at 0.4%, this morning's figures from Nationwide have revealed nothing new, but is it all about to change?

As Nationwide inform us that average house prices in the UK are now £215,368, Robert Gardner, Nationwide's Chief Economist, comments on this morning's figures: “Annual house price growth remained below 1% for the 11th month in a row in October, at 0.4%. Average prices rose by around £800 over the last 12 months, a significant slowing compared with recent years – for example, in the same period to October 2016, prices increased by £9,100.

Indicators of UK economic activity have been fairly volatile in recent quarters, but the underlying pace of growth appears to have slowed as a result of weaker global growth and an intensifying of Brexit uncertainty. To date, the slowdown has centred on business investment, while household spending has been more resilient.

The underlying pace of housing market activity has remained broadly stable, with the number of mortgages approved for house purchase continuing within the fairly narrow range prevailing over the past two years.

Solid labour market conditions and low borrowing costs appear to be offsetting the drag from the uncertain economic outlook. The question is whether this pattern will continue.

There were tentative signs of a softening in the jobs market in the three months to August, as employment fell, unemployment rose, and wage growth slowed a little. If this trend continues it would be a significant concern, as the labour market has been the key factor underpinning the resilience of the household sector in recent years.

However, monthly data is often volatile and the unemployment rate remains close to 40 year lows and real earnings growth (i.e. after taking account of inflation) is close to levels prevailing before the financial crisis.

If Brexit uncertainty lifts in the months ahead, hiring is likely to recover, although there may be some upward pressure on mortgage rates as investors once again contemplate the potential for UK rate increases in the years ahead. However, in the near term such increases are likely to be capped by trends in global financial markets. Weak global economic prospects continue to exert downward pressure on long- term interest rates around the world – including the UK.

Moreover, mortgage rates remain close to all-time lows – more than 95% of borrowers have opted for fixed rate deals in recent quarters, around half of which have opted to fix for five years.”

As ever, the property industry was quick to react. Here's what they're saying:

Guy Harrington, CEO of property lender Glenhawk, said: “It’s one headwind after another. Our politicians are doing the housing market no favours; Brexit uncertainty has now been compounded by general election uncertainty, creating a near perfect storm of unsupportive conditions for growth. Despite an improving earnings and high employment environment, the market remains characterised by sluggish prices, with only what, at this stage, looks like a highly unlikely resolution to the political situation set to shift this sentiment.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, says: "House price growth remained subdued in October and it comes as no real surprise. While Brexit uncertainty continues, people don’t want to make big decisions about moving home unless they absolutely have to. It is hard to see how this will change until there is more certainty and some resolution politically, either way.

Those who are taking out mortgages or remortgaging are taking advantage of cheap fixed rates with half of these choosing to secure their deal for the medium-term of five years. This suggests that borrowers are concerned about the future movement of interest rates, while at the same time are taking advantage of the price war among lenders, resulting in rock-bottom rates. This is encouraging because if rates do rise, most borrowers will be able to ride out the storm and benefit from manageable mortgage payments."

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: "Nationwide's figures are always important, not just because of their longevity but their longer-term accuracy. They confirm that we are not seeing or expecting to see any fireworks in the market over the next few months or at least until the smoke from the political situation begins to clear.

What we are seeing on the ground is a continuing determination to find common price ground between buyer and seller, which is reflected in no real change to these steady transaction numbers. There is no doubt, as far as we are concerned, that pent-up demand remains just waiting for the Brexit gun to fire before releasing what we expect to be a modest improvement in prices and activity."

Shepherd Ncube, founder and CEO of Springbok Properties, had this to say: “Much like the walking dead, the UK property market continues to plod on through the thick fog of Brexit uncertainty, showing little signs of resurrection to former levels. However, like a proverbial Michael Myers of Halloween movie notoriety, it is still refusing to actually die and while current price growth may seem insignificant, we are still in a better position than we were this time last year.”

Marc von Grundherr, Director of Benham and Reeves, comments: “While the black cat of Brexit uncertainty continues to cross the path of UK home sellers a chill in the rate of house price growth is to be expected. We’ve seen yet more spells of uncertainty cast across the property landscape of late and this, coupled with a seasonal slowdown in the lead up to Christmas, will do little to bring a spark back to the market this side of the New Year.

However, much like Frankenstein’s Monster, we will see the UK property market rise once again and once the shackles of political indecision are broken, a return to form will be inevitable.”

Jamie Johnson, CEO of FJP Investment, says: “Today’s house price index demonstrates that despite Brexit uncertainty, demand for real estate remains. Yes, the rate of house price growth has slowed down, but the fact that prices are rising at a time when the government is amidst a political crisis should not be overlooked. The question now is whether this upturn is a sign of things to come.

The property market faces some challenging months ahead, made more complicated by the fact that Brexit has been delayed until 31st January 2020. Yet despite the uncertainty, it is important to remember the bigger picture. Whilst it is natural in times of uncertainty for property prices to fluctuate, bricks and mortar has remained, for the most part, resilient. Figures from the Office of National Statistics, for instance, show that the average UK house price has risen from £214,000 in June 2016, to £228,000 in January 2019 - impressive growth for any asset.

The property market has weathered many storms before, including the global financial crisis, snap general elections and high-profile political resignations, and there is no reason to believe this won't be the case in the months leading up to Brexit."

Paresh Raja, CEO of Market Financial Solutions, said: "Annual house price growth remains at a low 0.4%, and this will have many property commentators worried.

We shouldn't let these monthly figures distract us from the bigger picture. In real terms, house prices have risen since the EU referendum vote, which is an impressive feat given the performance of other assets that have struggled as a consequence of Brexit uncertainty.

And let's not forget that for the majority of October, the UK was assuming that Brexit would be happening at the end of the month. Yes, this has now been delayed, but these latest figures nonetheless show that even when Brexit looked to be a mere few weeks away, house prices were not drastically fluctuating.

Buyers and sellers are no doubt suffering from Brexit-fatigue, and this marginal increase/decrease will no doubt be replicated over the coming months as we wait for Brexit to be resolved. Once certainty returns to the market, I'd expect to see a boost in transactions as buyers and sellers are able to effectively plan for the future without Brexit uncertainty hanging over them."

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