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News: UK house prices up by double digits for first time since 2010, say Nationwide

Fri, 02 May 14


Concerns have been widespread about the growth of values within the UK property market, as high demand and low supply drive up prices beyond the reach of many, even as Help to Buy enables more and more first-time buyers onto the property ladder. The lender’s house price index, published today, will stoke those worries that a bubble is forming, with house prices rising 1.2 per cent in April to an average of £183,577 - 10.9 per cent higher than April 2013.

This equates to a annual leap of £3,313 and is the first time prices have risen by double digits year-on-year since April 2010.

London continues to lead the national growth, with the imbalance in capital at a notable extreme compared to the rest of the country. Indeed, in the first quarter of 2014, prices in the city were around 20 per cent higher than their pre-crisis levels, while in the UK as a whole prices were still around 2 per cent lower.

“Interestingly, price growth in London and the South East appears to be being driven by the top end of the market, with higher priced locations recording stronger price growth," comments Robert Gardner, Nationwide’s Chief Economist.

“This pattern accords with housing transactions data, which shows that higher priced properties in London and the South East have accounted for a higher proportion of transactions. For example, in London the proportion of housing transactions involving properties over £500,000 has increased from 13 per cent in 2007 to around 25 per cent in 2013. The share involving properties of over £1m has more than doubled from 3 per cent to more than 6 per cent.”

While wealthier buyers in London are still active, recovery is also spreading across the rest of the UK. Improving economic confidence among buyers and sellers, though, is only helping to increase interest in an inadequate supply.

“Earnings growth is beginning to pick up, with wage increases finally outpacing the rise in the cost of living in February," explains Gardner. "Nevertheless, house price growth is outstripping income growth by a wide margin. The risk is that unless supply accelerates significantly, affordability will become stretched."

The government has already taken action to help minimise risks. Indeed, today’s figures follow the introduction of the Mortgage Market Review, with tighter regulations designed to restrict lending to those who can definitely afford a mortgage on a new home.

The introduction of these measures is already expected to slow down sales, as lenders and buyers adjust to the new system, hopefully resulting in a more stable market.

“The introduction of Mortgage Market Review (MMR) measures could have an impact on activity levels in the months ahead as the new measures bed down," acknowledges Gardner. "However, underlying demand is likely to remain robust, as mortgage rates remain close to all-time lows and as consumer confidence improves further on the back of stronger labour market conditions and the brighter economic outlook."

Regardless of other measures put into place, the problem at heart remains a simple one: there are not enough homes. Building activity is up, with housing starts boosted by the new-build focus of Help to Buy, but it is still falling far short of the amount needed to meet demand.

The number of new homes being built in England remains around 40 per cent below pre-crisis levels. Even then, that was insufficient to keep up with the increase in the number of households being formed.

For now, Nationwide says that MMR measures, which place a greater emphasis on affordability, should "help to ensure that prices do not become detached from earnings". In the long-term, though, it is only a band aid to cover an already stretching wound.


See also: Nationwide House Price Index

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