House Price Watch – Issue 6 – July/Aug

National Summary – UK house prices rise nationally in July/ August and signal a wider recovery

There was no holiday for house prices this summer.  Nationally, all the major indices report a rise in house prices in the July/ August period and the recovery is now seen to extend across the UK.

The average monthly increase is 0.6% (reported national house price increases over the past month range from 0.3% by LSL Property Services and Rightmove up to 1% by Land Registry).

House prices are significantly higher than the same period last year — on average up 3%. Many reports indicate that 2013 marks the recovery from the 2008 financial crisis. In particular, RICS reported the fastest increase in house prices in seven years.

Data from Council of Mortgage Lenders suggests the upturn is largely driven by first time buyers who account for 45% of house purchase loans in the second quarter of 2013 (highest level since 2007). Even so, LSL Property Services say the level of first-time buyer activity is around half of what might be considered normal levels and call on the government to address housing supply and to consider removing stamp duty; a disincentive to buying for both home movers and first time buyers.

Experts point to several factors driving the recovery of the housing market:

  • Consumer confidence is improving as a result of modest gains in employment and signs the UK economy is gaining momentum
  • An increase in the availability and reduction in the cost of credit fuelled by Funding for Lending and Help to Buy schemes which are seen to be helping first time buyers get a foothold on the property ladder
  • The Bank of England’s Monetary Policy Committee announcement that it intends to keep interest rates on hold at least until unemployment reaches 7% suggests the base rate will be stable until late in 2016 which may also support confidence among potential buyers.

Regional Summary – Regionally, East Midlands tops the monthly rise in house prices (up 2%) and London has seen the sharpest rise over the past year (up 6%)

Growth in house prices is evident in most areas (apart from Wales). The North West (up 1.5%) and London (up 1%) show strong rises alongside the East Midlands (up 2%). “Prices are now rising in all regions of the country, suggesting confidence is rippling out from London and the South East” RICS

However, the North/ South divide continues in terms of property prices. London’s average house price exceeds £450,000; up 6.3% since July last year according to Land Registry figures.  Areas outside the South and East have an average house price below £200,000; lowest in the North East.

Longer term affordability is a concern particularly in London and South East where the greatest mismatch between supply and demand is reported and there is a lack of housing supply. “The risk is that if demand continues to run ahead of supply affordability may become stretched. While house prices are still elevated compared with incomes, affordability is being supported by the ultra low level of interest rates.  A typical mortgage payment for a first time buyer is currently equal to around 29% of disposable income, in line with the long term average.” Nationwide

“The Government urgently needs to address housing supply if it is serious about boosting home ownership levels.”LSL Property Services

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