Mixed outlook for house prices

Jonathan Wright
Jonathan Wright
Fidelity Personal Investing13 April 2018

The outlook for house prices in the UK continues to look mixed. For the 12th consecutive month buyer demand has fallen according to the March 2018 Residential Market Survey from the Royal Institution of Chartered Surveyors (RICS).

While some regions are showing a more positive picture, especially Scotland, Wales and the north west of England, the picture is very different in London and the South East which both show signs of weakness. When asked about the three month outlook for prices, surveyors expect prices to be flat, but looking further ahead, 47% of those questioned anticipate prices to be higher in the coming twelve months. The only exception is London where respondents expect prices to continue falling over this timeframe.

A sure sign of house market weakness is sellers testing the water, then taking their properties off the market. In this latest survey, a new question was added asking respondents whether they had seen an increase in the number of sellers withdrawing their property compared to a year earlier. Nationally, respondents saw no change, but in London, 55% said they had seen a rise in the number of properties coming off the market.

It’s understandable why homeowners are thinking twice about selling in London at the moment. This week Halifax, Britain’s biggest mortgage lender, reported London house prices are falling at the fastest rate in nine years. Prices in the capital were down 3.2% between January and March compared with the previous quarter and have been falling on a quarterly and annual basis since the third quarter of 2017.

But it’s not the same nationally. The Halifax also reports prices growing strongly in some regions of the country. The east Midlands and East Anglia recorded the fastest rates of annual price inflation, at 7.3% and 7.2% respectively, followed by Scotland at 6.7% and Yorkshire and the Humber at 6.1%.

One of the problems with property in London is the current excess of newly-built luxury apartments. Last year more than half of the 1,900 luxury apartments built in London failed to sell, as wealthy overseas investors are looking elsewhere due to the Brexit uncertainty, while home-grown property investors are put off by the hike in stamp duty on second homes.

Currency movements also play a role. At 1.42 to the dollar, holiday makers heading to the US this summer will be cheering the pound’s recent strength, which is now more than 10% higher than it was last August. The pound is also up against the Euro too, meaning property prices in the UK are now more expensive to foreign buyers.

Of course the most important factor when it comes to buying or selling a property is the cost of borrowing. Interest rates have been at record lows for the past ten years and a lot of us have got used to cheap borrowing. However the message from the Bank of England’s last Monetary Policy Committee meeting was very clear: get ready for higher rates soon.

The Bank meets next in May and commentators say the chance of a rate rise is 50/50, as the Bank’s central forecast of gently falling inflation and only modestly rising wages appears to be on track.

So as we enter spring, traditionally a popular time for houses to be put up for sale, it will be interesting to see how the market moves. With signs on the high street that consumers are being squeezed enough already, the Bank of England will be monitoring the housing market very carefully when assessing whether to raise rates in May. While a rate rise will be well received by savers, the picture will be very different for borrowers, especially first-time buyers looking for affordable mortgage payments, already struggling to find a deposit.

Important Information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.