Price growth continues for many, but transaction numbers are slowly falling
UK house prices rose 0.6% in June, according to Nationwide. Over the last two years, these occasional strong months have been followed by weaker ones, leading to little overall price change. June’s price rise leaves the year to date (YTD) growth at 0.6%, consistent with our forecast of 1.0% annual price growth in 2018. The regional variation is similar to Q1, with the strongest growth in Scotland and the Midlands, while there have been substantial price falls in London of 2.6%. Although the pattern remains the same, the level of price growth has slowed in almost all regions.
Alongside price falls in London, transactions have fallen by 4.0% in the last three months. In the Midlands, although prices are growing, this is not reflected in transaction volumes, which fell 1.4% in three months to April. In contrast, the number of new instructions increased for the first time since summer 2016, according to the RICS Survey. New buyer enquiries, despite a fall in May, have also been on an upward trend for most of 2018.
But this positivity is at odds with other indicators and the UK housing market faces increasing headwinds over coming months. The Bank of England base rate is now widely expected to go up in August. Although the June MPC meeting voted to keep the base rate at 0.5%, there is growing support for a rise. This will put further upward pressure on mortgage interest rates, which have slowly started to rise over recent months. It follows a broadly positive Q2 for the UK economy. The construction sector had its weakest quarter since 2012, but there was surprising growth in retail sales and employment.