Price growth continues shift northwards, but sentiment has weakened
House prices rose 0.3% in September, according to Nationwide. This puts year to date growth at 1.2%, slightly above our forecast for 2018 of 1.0%. The strongest growth continues to be focussed in the Midlands and North of England, except for the North East. Prices in London are still lower than last year but grew 0.5% in Q3.
While the main indices continue to report price growth, surveyors’ perceptions of price growth weakened in August, with almost as many seeing falls as rises, according to the RICS survey. There were also fewer surveyors reporting growth in volumes of enquires and instructions. Surveyors had been reporting rising numbers of both over recent months, although transaction volumes have continued to slowly decline. This shift in opinion has put demand (enquiries) ahead of supply (instructions) for the first time since mid-2017, which may have supported recent price growth.
The longer-term outlook for price growth is weaker. The broad political and economic backdrop is likely to remain uncertain for at least another six months. Income growth is expected to remain modest, holding back the potential for house price increases. Analysis by Oxford Economics shows that the Bank of England forecasts for wage growth have been consistently over-optimistic and suggests that inflation will slow, meaning further rises in the base rate will come through slowly. But mortgage interest rates are clearly on the rise, having fallen fairly consistently since 2008. The average 75% loan-to-value 2-year fixed rate mortgage had an interest rate of 1.75% in August, its highest level for over two years. Further rises will limit the capacity for house price growth.