The average price of a house in the UK soared by over £20,000 during the last financial year, reaching an all-time high. UK residential property price inflation is now back at double-digit figures after two years of slower growth, reports The House Shop.
Plenty of prospective buyers chasing the decreasing supply of houses for sale has shot prices up by £21,500+ compared to March 2015. That’s a 10.1% price rise. The most recent Halifax home cost index shows the average cost of a house in the UK is now at £214,811. As well as being the largest increase since July of 2014, it’s the second largest over all since the credit crunch that happened late 2007.
Housing prices fell by little (1.5%) in February 2016, before rising around 2.6% again in March.
Halifax derives their data from homebuyers who apply to Halifax for home mortgages. Martin Ellis, a Housing Economist for Halifax, has stated that the property price rise is driven by the current supply vs demand imbalance, which he classified as “acute”. February of this year marks three months in a row of increased numbers of new houses being completed.
Although the amount of new houses for sale hitting the market has increased in the last few months, that number is clearly not keeping up with a concurrent rise in demand.
According to another major mortgage lender, Nationwide, house prices actually dropped for two consecutive months last year in July and August, causing some concern that the market might be turning around. Nonetheless, since the price drop that happened from late 2007-early 2009, the UK market has been steadily rising, and the latest price boost shows that a couple of months of consecutive house price falls are not at all a sign of a real estate market downturn.
Effect of the EU referendum
UK House Prices Rise to Record High
Many leading economists and newspapers have shared speculation and warnings that UK property prices could fall if the UK electorate decides to vote UK out of the European Union in Thursday’s referendum. However, economists have published advice that inflation could rise as well as fall, and the property market could go either way. The only thing that it seems safe to say is that some buyers and sellers might be cautious over the next few months, hoping for a sharp price decline or rise, respectively, after June 23rd.
It’s been common lately to hear market managers warning that businesses will pull out of London if the UK withdraws from the EU. But many UK nationals also have property elsewhere in the EU, and might find post-Brexit that their finances will be in much better shape if they return home. For example, UK citizens who are currently living abroad and receiving their pension will no longer be able to. Even for financially independent UK nationals, they may find it much more difficult to come and go between the UK and their destination of choice. There are thousands of investors poised right now ready to buy their place in the sun abroad, and the referendum results will swing their purchases in many cases.
Rush of landlords and second homebuyers
Taking these cautions into consideration, Nationwide’s data shows that second homebuyers were in fact rushing to buy before the Stamp Duty rise in April. New alterations to Stamp Duty mean that property investors buying to let will now have to foot a 3% fee as of April. Nationwide reported an average 5.7% rise in prices over the last year, compared to Halifax’s 10%. Whichever figures you go by, it’s possible that the March jump in prices will be followed by a slight slowdown between April and June. This slowdown should just be on average, and the market will probably stay robust due to demand from people moving house and first time buyers.
The Chief Economist over at IHS Global Insight expects the upward pressure on house prices to ease after April due to this slight “waning” of second home buying interest. The prices that we are seeing right now, according to Halifax’s data alone, have pushed the price-to-profit ratio right back up to record amounts not seen since the last big property boom in the early 2000s.
Another possible influence on the market this year might be the fact that property inflation UK-wide has increased significantly more than wage rises over the last few years. This might be expected to slow buying, but borrowers have been able to keep up with more expensive houses due to low mortgage lending rates and being able to extend the repayment terms. Overall, optimism for property in the UK looks set to continue to outpace widespread economic caution and pessimism, regardless of the results of the Brexit referendum.
In addition to low mortgage rates and appealing interest rates, a continued squeeze on supply is keeping prices high. The high ratio of buyers compared to sellers means that rival buyers are pushing prices up. Although investors are going to be understandably more reluctant after the April rate rise, there should be plenty of new buyers ready to rush in and fill the void.
Flat prices, in particular, have risen rapidly since 2008 (compared to other property markets), and this is especially true in London. HouseSimple.com’s Chief Executive, Alex Gosling, is concerned that the record high that house prices reached up to March might lead some market watchers to speculate that property market must be spiraling out of control. But Gosling believes that the figures reflect investors seeking to avoid the April rate changes and that there will be a soft slide back to a healthy, more sustainable market increase over the coming months.