London has become the weakest performing region for house price growth for the first time since 2005 according to the latest House Price Index from Nationwide. The average property value is down by 0.6% on an annual basis in September.
The average house price in the UK now stands at £210,116 with national annual house price growth remaining stable in September at an average of 2.0% down slightly from 2.1% in August. However on a monthly basis prices rose by 0.2% which is up on the -0.1% rate recorded in the previous month.
The Chief Economist at Nationwide, Robert Gardner, comments on the figures: “Housing market activity, as measured by the number of housing transactions and mortgage approvals, has strengthened a little in recent months, though remains relatively subdued by historic standards. Low mortgage rates and healthy rates of employment growth are providing some support for demand, but this is being partly offset by pressure on household incomes, which appear to be weighing on confidence. The lack of homes on the market is providing ongoing support to prices.”
At its September meeting the Bank of England’s Monetary Policy Committee (MPC) signaled that if the economy evolves in line with its expectations an interest rate increase is likely in the months ahead. If this was the case, this would be the first increase in the bank rate since July 2007. Most economists and financial market pricing suggest this would be a small rise of 0.25% likely at the MPC’s next meeting in November taking up the bank rate to 0.5%.
The share of outstanding mortgages on variable interest rates, which would be likely to see an increase in payments if the bank rate is increased, has fallen to its lowest level on record at 40% down from a peak of 70% in 2001. Robert Gardner commented saying:
“Moreover, a 0.25% increase in rates is likely to have a modest impact on most borrowers who are on variable rates. For example, on the average mortgage, an increase of 0.25% would increase monthly payments by £15 to £665 (equivalent to £180 per year).”
He carries on: “That’s not to say that the rise will be welcome news for many borrowers. Household budgets are already under pressure from the fact that wages have not been rising as fast as the cost of living. Indeed, in real terms (i.e. after adjusting for inflation), wage rates are still at levels prevailing in 2005.
Nationwide has also released its Quarterly Regional House Price Statistic for the third quarter (Q3) of the year which has shown that East Midlands was the top performing region with an average 5.1% increase in house prices year-on-year. This is the first time since 2002 that the region has taken the top spot.
London is the only region to record a yearly price decline with an average drop of 0.6%, the first time since Q3 2009 that London house prices have fallen on an annual basis.
Wales experienced a slight pick-up to 2.6%, while Northern Ireland saw a softening in annual growth to 2.4% from 3.8% in Q2, Scotland’s growth was similar to Q2 at 1.9% while England’s average house price rose by 0.7% during Q3 and was up by 2.3% over the past 12 months.
Northern England (the West Midlands, East Midlands, Yorkshire and the Humber, the North West and north) has continued the pattern we witnessed in Q2 with an annual increase of 3.2% in comparison to 1.9% in southern England (the South West, outer South East, Outer Metropolitan, London and East Anglia).
However the gap in cash terms between southern and northern England is still exceptionally high at £171,000, a figure which has doubled over the last decade.