House prices in the UK increased by 0.5% month on month in July defying the vote to leave the EU
House prices in the UK increased by 0.5% month on month in July, defying the vote to leave the European Union which many commentators though would have an adverse effect on the nation’s property market.
It means that the annual rate of house price growth edged up from 5.1% in June to 5.2% in July, taking the average price of a home to £205,715, according to the data from the Nationwide House Price Index.
It is the first index from a major lender to be published since the historic vote on 23 June and overall the index report says that the UK housing market is still seeing steady growth. However Nationwide chief economist Robert Gardner said it is important to note that the index is based on data at the mortgage offer stage so there still might be an impact in future data.
‘It means any impact from the vote may not be fully evident in July’s figures, as there is a short lag between a buyer making the decision to purchase a property and applying for a mortgage,’ he explained.
He also believe that the outlook can only be described as uncertain. ‘It will be tempting for commentators to assign any trends in the coming months to the impact of the referendum. Housing market transactions were always likely to soften over the summer after the surge in activity in March, as buyers brought forward purchases of second homes to avoid the stamp duty levy, which took effect in April,’ he pointed out.
‘Determining how much of any fall-back in activity is the result of the tax changes and how much is due to the referendum will be difficult. In the near term, increased economic uncertainty may lead to weaker demand for homes. Leading indicators are consistent with softening ahead. Household confidence fell sharply in the wake of the referendum result, especially attitudes towards making major purchases, which in the past has correlated with mortgage activity, though less closely in recent years,’ he added.
He also pointed out that in the run up to the vote the Royal Institute of Chartered Surveyors (RICS) reported declines in new buyer enquiries and expectations of weaker price growth amongst surveyors. ‘Although these trends predate the vote and are likely to have been impacted by the recent tax changes as well as the referendum. How the labour market evolves will be crucial in determining the demand for homes in the quarters ahead. It is encouraging that conditions were robust in the run up to the vote, with the unemployment rate falling to a ten-year low in the three months to May,’ Gardner said.
‘The decline in long term interest rates to new all-time lows in recent weeks should also help to keep borrowing costs low and provide some support for demand. Even if there is a fall back in demand as a result of economic uncertainty, the impact on house prices is not certain, as potential sellers may also hold off from placing their properties on the market,’ he explained.
He also explained that the stock of homes on estate agents’ books is already close to its lowest levels for 30 years and surveyors have reported a decline in new instructions to sell alongside a fall in buyer enquiries. ‘Moreover, house builders may react to the uncertainty by delaying construction, even though home building is already failing to keep up with the natural increase in the population,’ he added.
The figures are proof of the market’s underlying strength in uncertain times, according to Rob Weaver, director of investments at property crowdfunding platform Property Partner. ‘No one really knows what the full impact of Brexit will be on the economy but while more volatile assets like stocks and shares fluctuate and falter, investors in UK residential continue to earn a stable, positive return,’ he said.
‘But if the past is any indicator of the future, there’s still no concrete evidence to imply this broad, continuing upward trend in house prices will change any time soon. The key determinants, ultimately, are economic conditions. Home buyers should be encouraged by a robust labour market and solid employment growth, particularly in London, and historically low borrowing rates which could drop even further,’ he pointed out.
‘Yet fundamental to the housing market is that Britain simply doesn’t have enough homes. Brexit or no Brexit, demand outstrips supply, which is further exacerbated by a growing population. The disconnect between supply and demand will continue to put upward pressure on the housing market over the medium to long term,’ he explained.
‘And even if prices dip, it will at least provide a solid floor. Buy to let investors should be consoled that if house prices level off for a while, they’re still producing a relatively substantial income. Even after all costs, landlords can still earn between five and 10 times current interest rates, depending on the type of residential tenure and where it is,’ he added.