There is no doubt that price growth in UK housing is slowing this year, and the second quarter has shown further evidence that we can expect to see stagnant values and even declines in some areas for the remainder of the year.
Nationwide Building Society recently issued its report for the second quarter, finding that house price growth across the country had reached its slowest pace in five years – with London values slightly falling. The building society put this down to squeezed household budgets, a “subdued” economy and a lower demand among nervous property buyers.
Although prices rose year over year in June by two per cent, this is down from 2.4 per cent the previous month, indicating that growth may continue to slow – eventually reaching a decline in some areas.
Decline in the capital
London is the worst-performing area of the quarter, according to Nationwide. The capital saw house price declines of 1.9 per cent. Agencies and surveyors in London are continuing to report a decline in the number of new buyer enquiries – and, at the same time, nervous sellers are holding onto their properties, leaving a paltrier supply. Robert Gardner, chief economist at Nationwide, said that it was unclear how things would pan out: “Looking further ahead, much will depend on how broader economic conditions evolve, especially in the labour market, but also with respect to interest rates,” he said.
Interest rate uncertainty
Although the Bank of England chose not to raise interest rates in the second quarter, this month it took the plunge and raised rates to their highest since 2009. This could be another reason for an ongoing slowdown; although the second quarter would have been a good time to nab a fixed rate deal, UK property developers and residential buyers considering a variable rate may be wary in light of the Bank of England’s latest move.
House prices in limbo
The UK housing market has seen some volatility in the second quarter, with prices frequently falling and jumping between months. Following a 1.6 per cent rise in March, prices dropped by 3.1 per cent in April and then rose again by 1.7 per cent in May, according to Halifax. This may simply represent popular times of the year to buy; however, the dip experienced at the beginning of the second quarter was the steepest in more than eight years.
Major national estate agents have been feeling the effect of the slowdown in the past couple of months. In June, Countrywide – which owns several brands of estate agencies in the UK – saw its share price plummet by 25 per cent, prompting it to issue its fourth profit warning in just eight months. Shares in the company reached their all-time low this quarter, having enjoyed a trading value of more than 600p just four years ago.
A rise on the horizon?
While Q2 has been a somewhat subdued time for the housing market, it is not all doom and gloom. Many experts in London see the dip in prices as a case of correction rather than a crash. With the current average house price in the UK at more than £300,000 (Your Move, April 2018), the figure is still ten times as much as the average UK wage. Your Move says that the performance of the housing market over the second quarter is slow, but it is still positive: the agency is “remaining confident of long-term prospects.”
So, in conclusion, house price growth is clearly slowing this year, according to figures from the second quarter. With ongoing uncertainty over Brexit, a shortage in housing and perpetually-squeezed household budgets, it is unlikely that much will change going into the third quarter. And many reports are suggesting that this slowdown is likely to be long-term – meaning that house prices could start to even out when compared with wages.