- The price of a typical UK house increased by 1.3% in August
- Prices 0.7% lower than one year ago
- Price of a typical home is £164,729
Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said:
“UK house prices rose by 1.3% in August, the largest monthly increase since January 2010, reversing the declines recorded in the previous two months. Given the difficult economic backdrop, the extent of the rebound in August is a little surprising. However, we should never read too much into one month’s data, especially since monthly price changes have been impacted by a number of one-off factors this year, such as the ending of the stamp duty holiday for first time buyers. These are factors that cannot be controlled by the usual process of seasonal adjustment.
Nevertheless, the fact that the annual pace of house price decline moderated to -0.7% in August from -2.6% the previous month provides evidence that conditions remain fairly stable. This may be explained by the surprising resilience evident in the UK labour market, with further increases in employment in recent months, even though the UK economy has remained in recession. How much have the housing and mortgage markets changed since the financial crisis?
“L P Hartley famously said that, “the past is a foreign country, they do things differently there”. In many respects these sentiments apply to the UK housing market, with a marked difference between current conditions and those prevailing between 2005 and 2007.
“Perhaps the most dramatic change is in the level of activity. For example, the average number of mortgage approvals is currently running at around 50,000 per month, around half the level prevailing over the 2005-2007 period. Interestingly, the share of mortgages taken up by first time buyers has actually increased slightly to 39% of the total, up from the 37% prevailing in the pre-crisis period. The more cautious approach of borrowers and lenders is evident in the increase in the average deposit from 10% to 20%.
“Affordability has improved on a number of metrics. Interest rates on both fixed and variable rate mortgages have declined. Together with a modest decline in house prices and a steady rise in average earnings, the monthly repayments for a typical first time buyer with a 20% deposit have declined to around 29% of take home pay, down from 40% before the crisis.
“In practice the decline is slightly more pronounced than this. Borrowers, especially first time buyers, have been increasing the term of their mortgage in recent years. The average term for first time buyers is currently 28 years up from 25 years over the 2005 to 2007 period. While this increases the total amount repaid over the term of the loan, it lowers the monthly repayments. Will we return to the pre-crisis pattern?
“The evolution of housing market conditions in future is likely to be closely tied to the trajectory of the wider economy. The number of housing transactions should pick up as the UK recovery gathers pace in the years ahead, though this is likely to be a gradual process.
“Policy measures aimed at supporting the availability of credit and lowering the cost of borrowing, such as NewBuy, and the Funding for Lending scheme, should help to provide support. However, much will depend on developments in the labour market. Increased job security, lower unemployment and stronger earnings growth will be needed to generate a sustained upturn in activity.
“Though uncertain, a modest further improvement in affordability is likely. Interest rates will not remain at current lows forever, but rate hikes still appear some way off. Further asset purchases by the Bank of England should also help to keep down longer-term interest rates. In addition, house prices are expected to remain fairly stable over the next two years, while incomes are likely to continue to rise gradually, which will also help to support affordability."
Ben Thompson, MD Legal & General Mortgage Club comments:
"This is much needed and timely news for homeowners. This may even serve as a gentle nudge to those currently renting who feel no urgency to buy at the moment. With renting on a national basis now more expensive than buying, we would ordinarily expect some tenants to now look to buy. Consumer confidence does though remain low and real first time buyer mortgages are harder to get than they used to be, so we are not yet into a normal recovery phase.
"The launch of the Funding for Lending Scheme six weeks ago has triggered some fierce price competition amongst lenders but not yet in the areas that would serve first time buyers well and we need to see competition and product availability in this area.
"Although it is more expensive for lenders to lend at 95%, lending to those with a 5% deposit hasn't suddenly become high risk overnight and there should be more products available in this area. If all lenders take steps to serve this market more proactively it would not only help more tenants to buy, it would also enable the market to get going again from the bottom and help the housing market on its slow climb back to a degree of normality. That would benefit lenders too.”
