Press release

15 Jan 2020 London, GB

Annual UK house price up to 12-month high of 2.2% in November

Firmer news on the housing market as the Land Registry/ONS reported that the year-on-year increase in UK house prices climbed to a 12-month high of 2.2% in November from 1.3% in October.

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  • Firmer news on the housing market as the Land Registry/ONS reported that the year-on-year increase in UK house prices climbed to a 12-month high of 2.2% in November from 1.3% in October. Prices rose an unadjusted 0.4% month-on-month in November.
  • The annual increase in UK house prices has recently been limited by falling year-on-year prices in London. However, house prices in London edged up 0.2% year-on-year in November, after a drop of 0.5% in October despite prices dipping an unadjusted 0.5% month-on-month.
  • Latest data from the Halifax and Nationwide point to a further firming of house prices in December 2019.
  • The November/December data suggest that house prices have stepped up a gear after largely struggling in recent months. However, house prices and activity can be volatile on a month-to-month basis and we would be cautious about reading too much into the recent firmer data – especially as it may have been distorted by varying perceptions of the recent uncertainties.
  • It is possible that house prices had a boost in November and December from some buyers keen to get their move done before the General Election to avoid any shocks or uncertainties that could arise.  
  • We will want to see sustained evidence of improving housing market activity and firmer prices before markedly changing our outlook for house prices over 2020. Nevertheless, we have modestly lifted our forecast for house price gains over 2020 to 2.8% from 2.0% and there looks to be an increasing possibility that the increase could reach 3%. This partly reflects the fact that we have also modestly raised our UK GDP growth forecast for 2020 to 1.2% from 1.0%.
  • With the UK General Election delivering a decisive result and the UK now set to leave the EU with Boris Johnson’s deal on 31 January, the housing market may receive a modest near-term leg up from reduced uncertainties. Rightmove reported a marked pick-up in buyer enquiries in the immediate few days after the general election.
  • Housing market activity – and possibly to a lesser extent prices – could be given a modest lift in 2020 if the Government introduces specific measures aimed at boosting the sector in the Budget (although the Conservative’s plans to cut Stamp Duty appear to have been shelved). Low mortgage interest rates and a shortage of properties for sale should provide some support to prices.
  • However, the economy still looks set for a pretty challenging 2020 and there will still be appreciable uncertainties, including on the UK-EU relationship front, meaning the upside for house prices in 2020 is likely to be limited. It is also notable that the fundamentals for consumers have probably peaked at least for the time being, with earnings growth recently slowing from its July 11-year high and employment essentially flat since midyear.

Howard Archer, chief economic advisor to the EY ITEM Club, comments:

“The Land Registry/ONS reported house prices rose an unadjusted 0.4% month-on-month in November, having dipped 0.2% in October and risen 0.2% in September. Prices have dipped 0.4% month-on-month in November 2018.

“Consequently, the year-on-year increase in house prices climbed to a 12-month high of 2.2% in November, after dipping to 1.3% in October from 1.4% in September. Annual house price inflation had been as low as 0.8% in July, which had been the lowest rate since October 2012. Annual house price inflation stood at 2.0% at the end of 2018, 4.5% at the end of 2017 and at a peak of 5.1% in October 2017.

“The annual increase in UK house prices has been limited in recent times by falling year-on-year prices in London. However, London prices edged up 0.2% year-on-year in November after a dip of 0.5% in October. This was only the second annual increase in London house prices (after an increase of 0.7% in September) since February 2018; there had been a peak annual decline of 3.3% in May. London house prices actually dipped 0.5% month-on-month in November unadjusted.

“The ONS’s measure of house price inflation lags many of the other measures as it is based on mortgage completions.

“Data are also out for house prices in December, which were stronger, particularly on the Halifax’s measure, which has tended to be at the very top end of house price measures even after it restructured its index earlier this year. Indeed, the Halifax reported that the year-on-year increase in house prices spiked to 4.0% in December (the highest since February 2018) from 2.1% in November and 0.9% in October (which had been the lowest annual increase since April 2013). House prices jumped 1.7% month-on-month in December (the largest increase since February 2007) after a gain of 1.2% in November. The firming in house prices late on in 2019 was much less marked on the Nationwide’s measure, although the annual increase did climb to a 13-month high of 1.4% in December from 0.8% in November and just 0.2% in September. House prices on the Nationwide measure only edged up 0.1% month-on-month in December after a gain of 0.5% in November.

Housing market activity saw modest but still limited pick-up in November 

“The latest data from the Bank of England mortgage approvals for house purchases noted a modest rise to 64,994 in November after slowing to a seven-month low of 64,662 in October from 65,825 in September and a 17-month high of 67,049 in July.

“Even so, at 64,994 in November, mortgage approvals were still below the middle of the 63,000-68,000 range that has broadly held since late-2016.

“There may have been a small lift to mortgage approvals in November from house buyers keen to get their move done before the General Election to avoid any shocks or uncertainties that could arise.

“Overall though, housing market activity has been pressurised in recent months by heightened uncertainties. It is also notable that the labour market is now showing increasing signs of faltering with both employment and earnings growth coming off the highs seen around July. Indeed, the peak in mortgage activity in July coincided when the fundamentals for consumers were particularly favourable in terms of employment reaching a record high in the three months to June and earnings growth hitting an 11-year high of 3.9% in the three months to July.

“Survey evidence pointed to housing market activity continuing to be constrained by uncertainties in November. In particular, the influential RICS housing market survey reported that the results of its November survey “continue to display a cautious approach from both buyers and sellers. Key metrics capturing buyer demand, new instructions and sales remain in negative territory. Much of the anecdotal commentary suggests that uncertainty surrounding the General Election and Brexit are continuing to stifle activity.”  Specifically, the survey showed new buyer enquiries fell for a third successive month in November after being flat in August and rising modestly in June and July. Meanwhile, newly agreed sales also fell for a third successive month, albeit at a reduced rate.”

Outlook for house prices

“Recent firmer data suggests that house prices have stepped up a gear after largely struggling in recent months. However, house prices and activity can be volatile on a month-to-month basis and we would be cautious about reading too much into the recent firmer data – especially as they may have been distorted by varying perceptions of the recent myriad of uncertainties.

“It is possible that house prices got a boost in November and December from some buyers keen to get their move done before the General Election to avoid any shocks or uncertainties that could arise.

“We will want to see sustained evidence of improving housing market activity and firmer prices before markedly changing our outlook for house prices over 2020. Nevertheless, we have modestly raised our forecast for house price gains over 2020 to 2.8% from 2.0% and we would flag that there is an increasing possibility that the increase could reach 3%. This partly reflects the fact that we have also modestly raised our UK GDP growth forecast for 2020 to 1.2% from 1.0%.

“The housing market may get a modest leg-up from the General Election delivering a decisive Conservative win and the UK now inevitably leaving the EU with Boris Johnson’s deal on 31 January. Rightmove reported a marked pick-up in buyer enquiries in the immediate few days after the general election.

“Housing market activity – and possibly to a lesser extent prices – could be given a modest lift in 2020 if the Government introduces specific measures aimed at boosting the sector in the Budget, although the possibility of cutting Stamp Duty appears to have been shelved. 

“Furthermore, mortgage interest rates are at historically low levels. Indeed, there is clearly a very real possibility that the Bank of England could cut interest rates in 2020.

“Meanwhile, a shortage of houses on the market will also likely offer some support to prices. The latest RICS survey showed new instructions to sell fell for a fifth successive month, and pretty sharply In November, properties coming on to the market had previously broadly stabilised over June-August, following 11 months of declines through to May. Consequently, average stock levels on estate agents’ books in November were close to the lowest level in the survey’s history. Meanwhile, the Government’s recent – and ongoing – initiatives to boost house building will take time to have a significant effect, so are unlikely to influence house prices in the near-term at least.

“Overall, despite our upward growth revision, the economy still looks set for a pretty challenging 2020, meaning the upside for house prices is likely to be limited. On top of this, Brexit concerns could very well pick up again as 2020 progresses, due to concerns over what will happen at the end of the year if the UK and EU have failed to reach agreement on their longer-term relationship and the transition arrangement is due to end.

“While a positive for the housing market is that consumers’ purchasing power has picked up appreciably since mid-2018 and employment reached a record high in the three months to June, these healthier fundamentals likely peaked around mid-2019. Specifically, real earnings growth improved from 0.1% in the three months to June 2018 to 2.0% in the three months to July 2019 – but it has since eased back to 1.5% in the three months to October. We suspect earnings growth is likely to stabilise at or just below recent lower levels.

“Meanwhile, employment has essentially flat-lined since mid-2019 and the labour market may well be relatively subdued in the near-term at least, as companies face a recently soft domestic economy and still significant uncertainties.”