Low mortgage rates and healthy rates of employment growth are supporting housing demand, but construction of new build properties is 'still too low', reports Nationwide.

What’s the latest?

The housing market remained steady in November with property prices edging ahead by just 0.1% month-on-month.

This slight increase, which followed a rise of 0.2% in October, left the average UK home costing £209,988 – only £1,200 more than at the end of May.

The annual rate at which house prices are rising remained unchanged from the previous month at 2.5%, according to Nationwide Building Society, and is also in line with the small increase the organisation forecast at the start of the year.

Robert Gardner, Nationwide’s chief economist, said: “The annual rate of house price growth remained stable in November at 2.5%.

Nevertheless, annual growth remains within the 2% to 4% range that has prevailed since March.”

Why is this happening?

The housing market remains caught between two opposing forces, as on the one hand, low mortgage rates and healthy levels of employment growth are creating ongoing demand.

But, on the other hand, growing affordability constraints and pressure on household budgets are causing potential buyers to be more cautious.

Meanwhile, the shortage of homes on the market is providing support for house prices, preventing a property market correction.

The net result of all of these factors is a housing market that is trading sideways.

Jeremy Leaf, former Royal Institution of Chartered Surveyors residential chairman, said Nationwide's figures were, "mildly encouraging as we might have expected to see a small dip at the very least in both annual and monthly house prices, bearing in mind the threat of an increase in interest rates, the imminent Christmas holiday and continuing economic and political uncertainty".

Who does it affect?

While the current situation is not ideal for anyone involved in the property market, it does provide some breathing space for potential first-time buyers, who no longer face a race to put together a deposit before they are priced out of the market.

This group has also benefitted from considerable government support, including the Help to Buy scheme, under which they can purchases a property with a deposit of just 5%, and the stamp duty waiver announced in the Budget.

But there has been criticism that there is not much support for people who need to trade up the property ladder, with this group often facing a bigger affordability hurdle than first-time buyers.

Sounds interesting. What’s the background?

The fact that the UK is failing to build the number of new homes needed to keep pace with population growth is the key factor that is causing affordability to become stretched.

Nationwide welcomed the Government’s Budget commitment to deliver an additional 300,000 new properties a year by the mid-2020s.

But Gardner pointed out that the long time-scale reflected the size of the challenge it faced, particularly as the construction rate of new homes is still running 13% below levels seen in 2007, before the housing market correction.

But, he said, the picture improved slightly when new dwellings created from converting larger homes into more units or changing the use of property, such as converting offices into flats, were included.

Since 2014, automatic permitted development rights have been granted to convert offices into residential properties.

This right has helped the number of ‘change of use’ additions to the housing stock almost double from around 20,000 in 2006/2007 to 37,000 in 2016/2017.

In London, homes created by a change of use accounted for a fifth of new dwellings last year.

Top 3 takeaways

  • The housing market remained steady in November with property prices edging ahead by just 0.1%
  • This slight increase left the average UK home costing £209,988 – only £1,200 more than at the end of May
  • The annual rate at which house prices are rising remained unchanged from the previous month at 2.5%

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