Highest Average House Price but Growth Rate Slows

The Halifax House Price Index reported that house prices are a record high at £218,002, up £13,448 from January. The 6% annual growth shows that house prices are still increasing, but momentum is slowing.

Annual growth has steadily declined by about 1% every other month since its height of 10% growth in March. November has been the first increase in annual growth since March, increasing by 0.8% from October. Despite the increased growth, market experts expect this to be the exception, not the rule, as the housing market continues to slow.

The supply of property’s coming available on the market has not increased for more than 9 months, however, demand has seen modest growth. The low supply of properties for sale and low mortgage rates will help support the high price levels, but, the growth will be slow and moderate over the coming years. IHS Global Insight predicts that house prices will increase by a modest 2% over the next year due to the purchasing power of consumers weakening.

Why is The Rate of Growth Slowing?

Consumer confidence in the UK housing market is at a three-year low, according to Halifax, but that isn’t the only reason that properties aren’t changing hands so quickly for buyers who aren’t as eager as they were several years ago.

House prices have steadily risen faster than income growth and this has inherently slowed housing demand. As affordability is stretched and people are priced out of the housing market, the demand has slowly declined. Furthermore, the disconnect between wages and house prices in addition to stricter mortgage regulations has made borrowing money more difficult for potential buyers.

The low mortgages can be on their way out of the market as banks like HSBC have removed their low 0.99% home loan option. These potential mortgage rate changes, in addition to Brexit uncertainty, the lack of housing options on the market and the numerous tax changes suggests that any house market pick-up will be subdue.

Halifax has also reported that home sales have had a slight increase in recent months, but are still lower than they were a year ago. The report also suggests that mortgage approval rates suggest that there might be more activity in the property market in the coming months.

The UK housing market has a strong foundation with years of steady house price growth. This strong foundation should carry the slowing market through the upcoming year and continue to see price growth, however, it will be slow and moderate compared to the previous years. This will be restrained celebration by buyers who have been priced-out by the relentless increasing prices but with average prices still disjointed from average incomes – activity is expected to remain minimal in 2017.