"Cash buyers are a more important driver of housing market dynamics than they were a decade ago"
The latest data from Nationwide has shown that during February, the average price of a home in the UK increased slightly to £205,846 - representing a rise of 0.6%.
The report also revealed that annual house price growth edged up to 4.5% and that more households in England own outright than with a mortgage.
Robert Gardner, Nationwide's Chief Economist, had this to say: “The annual rate of house price growth was little changed in February at 4.5%, only slightly higher than the 4.3% recorded in January. House prices increased by 0.6% over the month, after taking account of seasonal factors.
Recent data suggests that the UK economy has continued to perform relatively strongly. The economy accelerated slightly in Q4, expanding by a healthy 0.7% quarter-on-quarter, and the unemployment rate remained stable at an 11-year low of 4.8%.
The outlook is uncertain, but we, along with most other forecasters, expect the UK economy to slow through 2017 as heightened uncertainty weighs on business investment and hiring. Consumer spending, a key engine of growth in recent quarters, is also likely to be impacted by rising inflation in the months ahead as a result of the weaker pound.
Nevertheless, in our view a small rise in house prices of around 2% is more likely than a decline over the course of 2017, since low borrowing costs and the dearth of homes on the market will continue to support prices.
How important is the role of cash buyers?
Robert Gardner, continued: “Cash buyers are a more important driver of housing market dynamics than they were a decade ago. Though the data only extends back to 2005, it suggests that the share of cash transactions increased significantly from around 20% in 2005/06 to around 35% in 2008 and has remained fairly constant since then.
The sharp increase in the share of cash purchases in 2007 and 2008 was a function of mortgage transactions declining sharply, rather than the amount of cash transactions increasing. This reflects the impact of adverse labour market conditions and the tightening of credit conditions during the financial crisis, which limited the number of people able to buy with a mortgage, while fewer such constraints would have applied to cash purchasers.
However, it is interesting that the share of cash transactions has not fallen back as the economy has recovered. Part of the reason is that mortgage market activity has increased only modestly and remains some way below the levels recorded in the mid-2000s.
The low interest rate environment at home and abroad has also continued to support the flow of cash into other asset classes, including UK residential property.
The rise in the cash share to an all-time high of 38.9% in Q1 2016 (and the fall back in Q2) was due to the introduction of Stamp Duty on second homes from April 2016. This policy change prompted investors to bring forward their purchases to Q1 2016 to avoid the additional Stamp Duty liabilities (a large proportion of these transactions are likely to have been conducted in cash) involvement of investors (domestic and overseas) in the London property market.
The fact that house prices in the capital are more than double the level prevailing in the rest of the UK (£473,073 versus £205,937 in Q4 on our measure) presumably acts as a limiting factor.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: "Although there is not much change in Nationwide's figures, stability in the housing market is welcome at the moment with so much talk of rising and falling prices and seasonal changes. Most of our buyers and sellers are trying to get on with business in a 'steady as she goes' manner rather than worrying too much about the future.
We have noticed an encouraging increase in first-time buyer demand for smaller properties, bearing in mind there seems to be a levelling of the playing field with investors and cash buyers who are more reluctant to take on new properties in view of imminent tax and other obligations."
Russell Quirk, founder and CEO of eMoov.co.uk, said: “The UK market has come out of the blocks slow but steady for 2017 and has continued to see upward price growth, shaking off January’s lowest rate of increase in 14 months.
This was almost certainly seasonal and as spring approaches UK buyers seem to be emerging from hibernation, albeit tentatively.
Despite the doom and gloom predictions we should start to see an increase in market activity over the coming months which should further strengthen this upward price trend.
It will be interesting to see where we stand after this month’s budget announcement. With an overall air of hesitation in the market, it is likely that many savvy buyers will be holding out to see what the Chancellor has in store, whereas the previous bulletproof nature of the market may have seen them proceed with a purchase regardless.
It is likely that Mr Hammond will loosen his stranglehold the top end market where stamp duty is concerned, which could breathe new life into the market to an extent, particularly in London. The severity of the property market storm in 2017 could well hinge on next week’s announcements so it will be interesting to see where we stand this time next month.”
Rob Weaver, Director of Investments at property crowdfunding platform Property Partner, said: "Annual house price rises have slowed but appear to have stabilised, hovering around 4.5% which is a sign of a robust, resilient market particularly in the light of economic uncertainty.
The fundamental issue of a severe shortage in housing supply has supported the market since last summer’s EU referendum.
As long as borrowing rates also continue at an historic low level then predictions for the year ahead are positive, although we probably won’t be seeing London house prices over the short-term racing in front with dizzying double digit rises.
The capital has been the powerhouse of UK property price growth. But there’s now softness in the centre in contrast to outer boroughs and particularly along the Crossrail route, where prices look set to rise faster as the much-hailed new rail route goes live next year.
As the London market is expected to be slower in 2017, established markets such as Clapham, Balham and Wandsworth should remain solid. They’re good transitional areas for people moving out of the capital for more space to Surrey and especially Guildford - a well-established wealth corridor."
Jonathan Harris, director of mortgage broker Anderson Harris, says: "February was a busy month for the mortgage market as we saw an uptick in new enquiries from buyers keen to get on with the business of moving. Article 50 will come whether we like it or not and buyers and sellers who need to move are mostly carrying on regardless, assuming they can find a property to move to.
While the proportion of cash buyers may be higher than it was a decade ago, the vast majority of people still need a mortgage and are taking advantage of the fact that rates are so low. What’s more, lenders seem keen to lend and that competition should lead to the continuation of cheap rates through the spring."