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House prices on the rise in 2017, but down from 2016

Buying a house is no mean feat. Finding the perfect home to call yours, for the right price and without facing a mammoth mortgage is incredibly difficult, especially in this day and age, due to the unstable housing market and fluctuating interest rates. Since the vote to leave the European Union in 2016, house prices have been struggling. According to the Office for National Statistics, house prices in November last year were up 5.1% from a year earlier, in November 2016, down from a growth rate of above 8% around the time of the Brexit vote. In the most recent report from the Nationwide Building Society showed the average price growth of 2.6% in December, down from 4.5% a year earlier, thus investigated how 2017 faired. 

What regions came out on top?

All regions in the UK, except London, saw house price gains in over the course of last year. The West Midlands came out on top for the first time ever, with the average prices up 5.2% year-on-year. However, on the other hand, London saw a 0.5% annual decline and, for the first time since 2004, the English capital concluded the year as the weakest performing region. East Anglia, last year’s top-performing region, saw the largest slow in annual house price growth, from a rise of 10.1% in 2016, to a staggering 2.3% in 2017. Outer South East saw a 3% drop, from 6.9% in 2016, to 3.1% last year. 

Suburban residential street with modern houses. West Midlands, England.

Photo credit: Marso/Shutterstock

However, it wasn’t all doom and gloom – Wales saw a slight pick-up in the rate of growth compared to 2016, with a 3.3% annual increase in 2017. Northern Ireland also witnessed a rise in house price growth, increasing by 1.3% from 0.7% in 2016, to 2% last year. The average house price in England increased by 0.5% in the final quarter of 2017, and was up by 2.1% over the year. This is the smallest annual increase since 2012, where all prices fell 0.4%. However, for the first year since 2008, the annual rate of change in Northern England was above that in Southern England, as Northern England saw a 2.6% increase year-on-year, whereas in the South, prices were up by just 1.6%.

While regional housing affordability rates have converged over the last year, there remains significant differences in affordability, reflecting the disparities in house price levels. Nationwide looked into how this affects potential buyers, by looking at regional income data to calculate where the income distribution to a prospective purchaser would lie, if they were purchasing a typical first-time buyer property in each region, with a 20% deposit and boring four times their single income. Nationwide conclude that the variation in affordability across regions has increased over the last 10 years, with affordability improving in Wales, Scotland and the North of England – however the most marked improvement has been seen in Northern Ireland, due to house prices being around 40% lower than in 2007. 

Photo credit: 1599686sv/Shutterstock

However, in London and the South East, affordability has become even more challenging for first-time buyers, with more people priced out of the market or needing to borrow a greater multiple of their income to afford a home and save for a deposit. According to Nationwide, “it is arguably even more challenging to save for a deposit now than it was a decade ago, due to falling real earnings and lower interest rates for savers”. Nationwide found that a 20% deposit in London would cost in excess of £80,000, which amounts to around £30,000 higher than a decade ago. Although, in other regions, such as the Midlands and Northern England, deposit requirements are largely similar to 2007.

As a result, according to research by Nationwide, it would take around 8 years for the ‘typical buyer’ to save for a deposit for a home. Sadly, this rises to nine years in the South East and to nearly a staggering ten years in London, even though the prospective typical buyer in the capital is in the top 10% of the income distribution.

“It would take around 8 years for the typical buyer to save for a deposit for a home”

In addition to this, mortgage approvals being granted by UK banks slumped dramatically in December, according to the latest published data from providers, which rises new concerns about the direction of the housing market for 2018. Despite the fact December is traditionally a ‘quieter’ month for mortgages, according to UK Finance, there were only 36,115 approvals granted to homeowners last month, down from a total of 44,476 in the same month in 2016 – a decrease of 8,361 (19%). Further to this, the number of mortgages approved in December are found to be the lowest figures recorded since April 2013, which does not bode well for the housing market.

Photo credit: sabthai/Shutterstock

This new data follows a weak report on buyer enquiries and ‘agreed’ sales in December, from the Royal Institution of Chartered Surveyors. A number of factors have taken a toll on the mortgage market, including the November interest rate hike, driven by the squeeze on real incomes and the deterioration in consumers’ confidence. The housing market is struggling to withstand even the most modest of increases in interest rates, and as a result, the housing market is set to “remain very weak this year, with house prices merely holding steady”, according to Samuel Tombs, of Pantheon Macroeconomics.

Looking ahead to 2018

How the housing market performs in 2018, will largely be determined by the developments in the wider economy in the UK; particularly regarding Brexit developments. Nationwide expect to see the economy growing at a “modest pace”, with an estimated annual growth of around 1 to 1.5% over 2018 and 2019. However, the subdued economic activity and the squeeze on household budgets is likely to affect the housing market activity and house price growth this year. Over the longer term, once the economy regains momentum, Nationwide Building Society expect house prices to rise in line with earnings, which is around 3 to 4% per annum. However, if the rate of house building fails to keep up with population growth, prices may outpace earnings once again, as they have in recent years.


Photo credit: R_Tee/Shutterstock

Feature image:  Monkey Business Images/Shutterstock 

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