Annual house price growth ‘remains below 1% for eighth month in a row’

Annual house price growth ran below 1% for the eighth month in a row in July amid signs that consumer confidence remains subdued, according to an index.

Across the UK, the average house price in July stood at £217,663, the study from Nationwide Building Society found.

Strikingly, house prices increased at the same rate of 0.3% on a monthly, quarterly and an annual basis in July.

Robert Gardner, Nationwide’s chief economist, said: “Annual house price growth remained below 1% for the eighth month in a row in July, at 0.3%.

“While house price growth has remained fairly stable, there have been mixed signals from the property market in recent months.

“Surveyors report that new buyer inquiries have increased a little, though key consumer confidence indicators remain subdued.

“Data on the number of property transactions points to a slowdown in activity, though the number of mortgages approved for house purchase has remained broadly stable.”

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Mr Gardner said housing market trends will remain “heavily dependent on developments in the broader economy”.

He said healthy labour market conditions and low borrowing costs will provide underlying support, though uncertainty is likely to continue to exert a drag on sentiment and activity.

The number of properties changing hands is low compared with housing market activity before the financial crisis, he said.

While first-time buyer numbers have nearly recovered to levels before the crisis, there is a continued weakness in home mover activity, which is still less than half the levels prevailing in 2007, Mr Gardner said.

He added: “Taking a longer-term view, housing market activity has been broadly stable in recent years, with the number of properties changing hands equal to around 5% of the total number of homes in the UK.

“This turnover rate (of around 5%) is significantly higher than the lows seen in 2009, but is still well below the rates of 8% seen pre-crisis.”

He continued: “A possible consequence of the low rate of churn is that the housing stock is not being utilised as effectively as it could be. Indeed, a noticeable trend over the past decade is the steady increase in the proportion of ‘under occupied’ properties, defined as those with two or more spare bedrooms.

“The latest data indicates that over half of owner occupied properties (54%) are now under occupied, compared with just 15% in the private rental sector.

“There is a demographic aspect to this. Alongside the rise in under occupation, there has been a marked decline in home ownership amongst younger age groups (in particular, those aged 25 to 34 and 35 to 44).

“Under occupation tends to be less prevalent amongst younger households, whereas around two-thirds of properties owned by those aged 65 or over have two or more spare bedrooms.”

Younger home owners also tend to move more often, which could also go towards explaining the lower property turnover rates.

Mr Gardner said 35 to 44-year-olds owning with a mortgage stay in their homes for 6.8 years on average, while for those aged 55 to 64 the average length of time they stay in a property is 17.2 years.

Commenting on Nationwide’s report, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “House prices still are barely rising in year-over-year terms; July marked the eighth consecutive month of sub-1% growth.

“Prices, however, have gained a little momentum recently, rising by 0.3% on a three-month-on-three-month basis in July.”

Mr Tombs predicted that demand in the market should be supported by a further fall in mortgage rates.

He said: “The average quoted rate for a five-year fixed rate 75% LTV (loan-to-value) mortgage already has declined to 1.97% in June, from 2.05% in January, but we think it will fall to 1.90% eventually, provided the recent decline in wholesale funding costs is sustained.”

Howard Archer, chief economic adviser at EY ITEM Club, pointed out that while the 0.3% month-on-month house price increase in July was “relatively modest”, it was still the joint highest monthly increase recorded this year so far, with a 0.3% month-on-month increase also recorded in April.

Mr Archer said it should be borne in mind that the overall housing market picture is currently “being dragged down by the weakness in London and the South East”.

Tomer Aboody, director of property lender MT Finance, said an overhaul of stamp duty is needed to improve sales volumes and re-energise the market.