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April House prices

In varying degrees, all of the major lenders and professional property market bodies have been reporting signs that house price growth has been slowing during the course of the past couple of months. This isn't wholly surprising, since the majority of sector analysts had forecast that the market would soften somewhat in 2017. What is perhaps more striking is the recent extent of the downturn. Nationwide has now published its April house price index, and its findings are in keeping with this trend.

House prices in the UK are falling

The most striking figure contained in the Nationwide report was that house prices in the UK fell by 0.4 per cent in April. Nethouseprices readers will no doubt recall that the lender recorded a decline of 0.3 per cent in March. The average cost of a residential property now stands at some £207,699.

The annual rate of growth is just 2.6 per cent, down from 3.5 per cent the previous month. This represents the slowest rise in house price inflation for four years.

Lower volumes of mortgage approvals

Meanwhile, the British Bankers' Association (BBA) announced its mortgage lending statistics for February, and these were just as sobering: mortgage approvals fell from 42,247 to 41,061.

These numbers, taken at their face value, appear to run counter to the latest Council of Mortgage Lenders (CML) index, which found that mortgage lending grew by 19 per cent, to £21.4 billion in March. The disparity can be explained quite readily. The CML reports on completed mortgage deals, while its counterpart, the BBA, just reports on approvals which haven't yet been translated into actual home loans. Allowing for the typical time lapse between obtaining a mortgage approval and completing a house purchase, the CML figures for April and May will no doubt reflect more closely the BBA's February index.

Analysing the figures

The first observation is that the Nationwide report's finding that prices fell by 0.4 per cent was not predicted by the main body of economic thought. Most housing economists anticipated that the cost of residential real estate would rise in April, albeit at the minimal rate of 0.1 per cent. That prices actually declined, said Robert Gardner, economist at the Nationwide, was unexpected for the simple reason that the wider economy is remaining robust. Certainly, he conceded, factors like increased pressure on domestic finances this year were widely forecast to slow down house price growth, but they weren't really thought likely to drag prices down.

Discussing his organisation's April index, Mr Gardner said that monthly reports can reflect some temporary volatility, but the fact that we are now in our second month of decline in the property market suggests that this is a trend rather than a "one off."

Other commentary

Jeremy Leaf, a leading London-based estate agent, said that the figures simply showed that there was an overdue market correction taking place, reflecting the fact that prices have reached an affordability "ceiling" in many places across Britain.

Howard Archer, of IHS, argued that the index was compelling evidence that the market is slowing in response to pressures on consumer finances.

One feature of the market that might have been expected to buoy prices is the increasingly low cost of mortgage borrowing. In a recent Nethouseprices column, we covered the emerging consensus that a mortgage rates war is being unleashed. Cheap borrowing, goes the argument, will allow more people to spend more on housing. This, of course, is true as far as it goes, and no one would seriously deny that low interest rates have, to some extent, supported the market. That they won't result in runaway house price growth, though, is explained by the rigidity of post-Mortgage Review rules around affordability. In other words, says Jonathan Harris, a mortgage broker, lenders are required to apply strict tests to every mortgage request, in order to be sure that the borrower can realistically afford the mortgage repayments in the event that interest rates are hiked. This, in turn, means that, as low as interest rates may be, borrowers cannot overextend themselves and buy higher priced properties.

Conclusions?

After months of mixed messages, it finally seems to be clear that the market is slowing. Uncertainty around Brexit is one of most oft-cited reasons for the sluggish performance of the sector. The upcoming general election might also induce caution among both buyers and sellers, though given the short lead time for the poll, this is unlikely to have a sustained impact on house prices. The general economy, which admittedly depends to a degree on the the outcome of the election, is believed to be key to the decline. Why?

Firstly, general price inflation is expected to rise to upwards of 2.7 per cent by the end of this year, which means that greater chunks of family finances will be used for everyday expenses, limiting both the savings and the confidence that are required to buy a house. This will be compounded by limited wage growth during the balance of 2017 and the probable contraction of the jobs market.

Secondly, the UK's economy is already showing signs of slowing, despite the fact that Brexit negotiations haven't really started in earnest. The Office for National Statistics (ONS) reported at the end of April that GDP growth more than halved, to 0.3 per cent, in the first quarter of this year. Economists had expected the figure to be closer to 0.5 per cent.

As discouraging as these figures unquestionably are, there aren't, at least as yet, any real grounds for doom and gloom. No one is suggesting that a house price crash is imminent, supported as prices are by Britain's chronic housing shortage. Equally, if the year since the EU referendum has taught us anything, it's that the country's housing market is remarkably resilient and more often surpasses than falls short of expectations.

Visit us again soon for the April statistics from other agencies, as well as the wider property market news.

Process of buying a first property research from Aldermore

New research from Aldermore has revealed the impact of the difficulties faced by first time buyers in the current housing market.
According to the findings, the process of buying a first property causes so much stress for some people it has made 35% ill or caused 34% issues in their relationship.

This stress is understandable. Aldermore’s figures show 17% of recent first time buyers took three or more attempts to buy their home, while 27% had to delay by more than two years. The impact of the buying process even resulted in 40% of respondents feeling like they have had to rebuild their life due to the compromises they had to make to get on the housing ladder.

Aldermore discovered that 9% found the actual process of securing a mortgage the biggest difficulty, and 10% cited the whole buying process as the biggest problem. For a further 8% of first time buyers it was the length of the purchase process.

When asked what could be done to improve the situation, 32% of recent first time buyers requested the issue of rising house prices to be addressed. 34% of respondents, simplifying the whole buying process would help, while three in ten (30%) believe the situation would improve if better mortgage products were available.

In the end though, the positives outweigh the negatives. 73% of recent first time buyers felt like they had reached adulthood when they got the keys to their first home, and 69% found that putting their own stamp on their new home to be an empowering experience.

75% of recent first time buyers feel they are no longer wasting money on rent, and 70% believe owning their own home gives them financial control.
Charles McDowell says:“Our latest quarterly first time buyer index reveals the issues recent first time buyers have faced when getting on the property ladder and the impact this is having on their day-to-day lives. Buying a first home is an empowering experience and can provide financial control, but our research shows the sacrifices being made by first time buyers to reach that first rung of the property ladder are negatively impacting their health and personal relationships.

The affordability ratio has doubled since 19972, demand is currently outmatching supply, and these difficulties are directly impacting first time buyers’ wellbeing. First time buyers are the driving force of the property market, but they are currently being priced out. More needs to be done to tackle these issues to ensure they have the best opportunity to buy their dream home.

Almost one in ten (9%) found the process of securing a mortgage the biggest difficulty which is why at Aldermore we are committed to helping to those who are struggling to gather a deposit by offering a range of products, including the family guarantee mortgage and 95% mortgages for customers who have a smaller deposit.”