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UK house prices: still a mixed picture

Jonathan Wright

Jonathan Wright - Fidelity Personal Investing

The state of the residential property market in the UK continues to be a mixed picture. If you compare the latest house price figures, a new North-South divide has opened up. Prices in London have fallen while pockets of the UK have seen much stronger levels of growth.

UK house prices: still a mixed picture

According to the latest Office for National Statistics (ONS) figures, property values in London fell by 1.9% in the year to March, making it the worst performing English region. Meanwhile Yorkshire and Humberside showed the highest annual growth with prices increasing by 3.6%, closely followed by the West Midlands at 3.4%.

Despite these modest falls, London safely remains the most expensive place to purchase a home with an average property price of £463,000, compared to an average of £162,000 for a home in Yorkshire and Humberside. The North East continues to be the cheapest English region with an average property price of £123,000, and has seen its prices fall by 0.8% over the same period.

Confidence in the ongoing development of the northern powerhouse and improved transport links such as HS2, have been attributed to the increase in northern prices. The growing trend of more flexible working patterns is also helping, enabling people to live further away from major conurbations such as London and the South East.

On the downside, Brexit worries have cast a long shadow over the housing market as households have delayed making major financial decisions such as moving house, especially those facing uncertain employment prospects.

However, this week, mortgage approvals jumped to the highest level for two years. Figures from the trade association UK Finance revealed banks and building societies approved 42,989 mortgages in April, which is the most since February 2017 and up 6% from the 40,564 mortgages in March. Is this a ray of hope for the property market?

These figures, which have surprised analysts, are compiled based on data from seven high street banking groups, which account for roughly two-thirds of the overall market. It suggests the housing market may have some temporary support now that the Brexit deadline has been delayed to the end of October.

Since very few of us can afford to buy a home with cash, mortgage approvals are a key bellwether on the state of the housing sector as well as the wider economy. Over the last 40 years, easier access to mortgage borrowing and lower financing costs have caused house prices to soar, benefiting the baby boomer generation, while millennials struggle to get their feet on the ladder.

Since the 1980s mortgages have become more affordable as interest rates have trended downwards, culminating in the financial crisis of ten years ago when the base rate hit a record low of 0.25%. It’s hard to imagine that 40 years ago rates were as high as 17%.

While a strong labour market and an ongoing housing shortage are supporting house prices, with the Bank of England base rate currently at 0.75%, the cost of financing a home isn’t going to get much cheaper. This could mean that in future residential property will not perform as strongly as it has done over the past 40 years - especially if rates start rising again.

With property making up such a large proportion of most people’s wealth, it’s a timely reminder of the importance of investing across the various asset classes over the long term.

Restrictions on tax relief for additional homes, as well as increased rates of stamp duty, have dampened the appeal of buy-to-let properties as an investment. Investing in funds within a tax-efficient wrapper such as an ISA or SIPP is one way you can ensure your home is not your only castle.

Your money can find security and refuge in other places too. There are literally hundreds of funds available that invest in different assets such as shares, bonds and commodities, as well as property. These can complement the investment you have already made in purchasing your home.

A good starting point is the Fidelity Select 50 range where our experts reveal their favourite fund choices. The funds are categorised across a variety of asset classes such as shares or bonds, and geographical regions from close to home to further afield.

More on the Select 50

Important Information

The value of investments and the income from them can go down as well as up, so you may not get back what you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55. The Select 50 is not a recommendation to buy or sell a fund. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.