Record house prices here to stay?

Daniel Lane

Daniel Lane - Fidelity Personal Investing

10 August 2018

UK house prices rose by 3.3% in the three months to July against the same period last year, according to figures released this week from the Halifax. This means the price of the average British home has now hit a record of £230,280, up from £228,102 in March.

The rise comes on the heels of June’s annual growth rate of 1.8%, making this the largest increase since last November. However, Halifax managing director Russell Galley was keen to put the latest readings in perspective, saying: “While the quarterly and annual rates of house price growth have improved, housing activity remains soft. Despite the recent modest improvement in mortgage approvals, the latest survey data for new buyer enquiries and agreed sales suggest that approvals will remain broadly flat until the end of the year.”

Indeed, the bank reported flat or falling new buyer enquiry figures for the past 18 consecutive months, with deteriorating sales in May and June. Rather than the start of a sustained pick-up in demand for houses, a shortage of properties looks likely to be the impetus for July’s bump.

North up, south down

For a more in-depth view of the overall housing picture in the UK, it’s worth looking at the regional disparity on show as well as the recent changes brought in to help get first-time buyers off the ground.

Last month’s figures from the Office for National Statistics (ONS) showed positive growth in the north of England, with the south and east dragging prices lower. And in its fourth straight month of price falls, London was the only region to report negative growth figures, making it the worst performer with prices decreasing by 0.4% over the year.

Detached houses showed the most notable uplift, rising by 4.6% to £344,000 but the average price of flats and maisonettes stayed unchanged at £203,000 over the year. With the capital accounting for a quarter of all UK flat and maisonette transactions, market weakness in London can have a very real and prolonged effect on overall national growth.

The uncertain direction of the pound and equally foggy Brexit implications mean overseas investors have largely chosen to steer clear of their previously well-loved property sector. Changes to stamp duty (lifting payments by 3% in many cases) for those renting out multiple properties are also deterring would-be landlords, and first time buyers in this end of the market face an uphill struggle in sourcing a deposit.

This is where many like to bring in the government’s Help-to-buy scheme but a closer look shows it might not help as much as we think when it comes to buying in the capital.

The initiative offers first-time buyers of new-build flats a chance to buy with a 5% deposit on apartments with a value up to £600,000 in London. The government take ownership of 40% of the property, with buyers taking up a 55% mortgage. After five years the owners start to pay interest on the government’s share.

The problem facing young buyers in London (and driving down sales, enquiries and prices in the region) is that these new-builds are now being designed to be offered right up to the £600,000 limit, meaning a deposit starts at £30,000. Throw in stamp duty of £20,000 and legal fees, and first-time buyers in the capital are looking at upfront costs of over £50,000 for a 60% share of their own home.

The danger for UK housebuilders is that buyers begin to delay purchases as they see steadily reducing prices - why buy today when it’ll be cheaper tomorrow? With London seeing year-on-year price falls in each of the last four quarters according to Nationwide’s latest House Price Index, many will be watching to see if the capital is the country’s canary in the coalmine.

The result could well be a rise in much longer-term rents but with the Royal Institution of Chartered Surveyors (RICS) predicting decreasing rental supply over the next five years due to landlords feeling the pinch, renting could become the lesser of two expensive options.

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.