The property market has not been toppled by June’s Brexit vote, or the introduction of higher Stamp Duty rates on additional homes in April, reveal new figures from Nationwide.
The latest House Price Index from the building society shows that house prices rose by an average of 0.6% in August compared to July, while annual house price growth is up to 5.6%, from 5.2% in the previous month.
The average house price in the UK now stands at £206,145, up from £205,715 in July.
Although the property market has experienced growth over the past month, the annual rate of inflation still stands within the 3-6% range that has been prevalent since early 2015.
The Chief Economist at Nationwide, Robert Gardner, notes that the recent pick-up in price growth is at odds with signs that property market activity has slowed over the past few months.
He reports that new buyer enquiries have softened as a result of the 3% Stamp Duty surcharge for buy-to-let landlords and second homebuyers, as well as the uncertainty caused by the EU referendum. Nationwide data shows that the number of mortgage approvals for house purchase plummeted to an 18-month low in July.
Despite this, Gardner adds that the decline in housing demand has been matched by weakness in property supply. Surveyors have reported that instructions to sell have dropped, as the stock of properties on the market remains close to 30-year lows.
“This helps to explain why the pace of house price growth has remained broadly stable,” he says.
Property Market Hasn’t Been Toppled by Brexit, Reveals Nationwide
The future of the property market
So what does the future hold for the property market?
Gardner comments: “What happens next on the demand side will be determined, to a large extent, by the outlook for the labour market and confidence amongst prospective buyers.
“It is encouraging that the unemployment rate remained at a ten-year low in the three months to June, though labour market trends tend to lag developments in the wider economy. It is also positive that retail sales increased at a healthy rate in July, up almost 6% compared to the previous year, even though consumer confidence fell sharply during the month.”
Nonetheless, he continues: “However, business surveys suggest that the manufacturing, services and construction sectors all slowed sharply in July, and, if sustained, this is likely to have a negative impact on the labour market and household confidence.
“Most forecasters, including the Bank of England, expect the economy to show little growth over the remainder of the year. Indeed, these concerns prompted the Bank’s Monetary Policy Committee (MPC) to implement a range of stimulus measures at the start of August, which will provide support to economic activity and the housing market.”
Interest rate cut
Gardner also looks into how the interest rate cut will affect the property market.
He says: “The MPC’s decision to lower UK interest rates from 0.5% to a new low of 0.25% will provide an immediate benefit to many mortgage borrowers, though for most, the boost will be fairly modest.
“The proportion of mortgage balances on variable rate products is lower than average at present (c.45% compared to an average of around 60% since 2001) and the typical saving from a 0.25% cut in interest rates is around £15 per month.
“The MPC’s stimulus measures will also provide indirect support to the housing market, and not just by boosting wider economic activity. For example, the decision to purchase an additional £60 billion of UK Government bonds will put downward pressure on long-term interest rates, which will, in turn, help to lower the cost of fixed rate mortgages, which have already decline to new all-time lows.”
He adds: “The creation of the new Term Funding Scheme is also important, as it means that lenders will have guaranteed access to low cost funding from the Bank of England, which should help ensure the supply of credit is maintained.”
The founder and CEO of online estate agent eMoov.co.uk, Russell Quirk, comments on the new findings: “Now two full months on from Brexit D-day and still no inkling that there has been any immediate impact on the UK housing market, in fact, quite the opposite.
“House prices have increased 0.6% in August, a marginal increase, but double that when compared to Nationwide’s figures for this time a year ago. So rather than the changes to Stamp Duty and the leave vote toppling the property market, we’re actually in a stronger position than we were in August 2015.”
He continues: “This continued increase has been attributed to a slowdown in both buyer demand and housing supply, which has helped to keep the scales finely balanced. However, this cooling in the market on both sides of the fence highlights that any steam lost is almost certainly a seasonal adjustment.
“With the summer holidays now drawing to a close and life returning to normality for many, I expect we will see the UK housing market kick it up a gear as we head into September.”
Ian Thomas, the co-founder and Director of online mortgage lender LendInvest, also responds to the index: “That house prices went up last month, despite the post-Brexit uncertainty, is a reflection of the sharp imbalance between supply and demand of property in the UK. The House of Lords Select Committee on Economic Affairs suggested we need to build 300,000 homes a year to have a moderating effect on house prices, but last week’s housebuilding figures from the Department for Communities and Local Government show we are nowhere near that.
“The Government must grasp this issue by the horns and do more to encourage homebuilding. It is clear that hoping that the biggest housebuilders will be able to build us out of this crisis is just wishful thinking, and grass roots changes are needed.”
Worryingly, a recent show on Channel 4 uncovered the chronic shortage of new build homes across the country. More details of what the shocking documentary discovered can be found here: /extent-britains-housing-crisis/