Press release

29 Jan 2020 London, GB

Nationwide reports annual UK house prices rise up to 14-month high in January

The Nationwide reported UK house prices rose 0.5% month-on-month in January, which was a fourth successive monthly rise and the equal largest (with November) since July 2018.

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  • The Nationwide reported UK house prices rose 0.5% month-on-month in January, which was a fourth successive monthly rise and the equal largest (with November) since July 2018.
  • The annual rate of increase in house prices climbed to 1.9% in January, the highest since November 2018; it was up from 1.4% in December, 0.8% in November and an eight-month low of 0.2% in September. Indeed, December marked the first time for 13 months that the annual increase in house prices had risen above 1% on the Nationwide measure.
  • The three-month/three-month rise in house prices jumped to 0.8% in January (the highest since March 2018) from 0.5% in December and 0.2% in November.
  • Recent firmer data and surveys suggest that the housing market may be changing up a gear after a largely lacklustre 2019 (with particular softness around the third quarter). Certainly, there is compelling evidence that the housing market has had an initial leg-up from increased optimism and reduced uncertainties following the decisive General Election result, as well as greater near-term clarity on Brexit with the UK now leaving the EU on 31 January with a deal.
  • While we suspect that the housing market may get a further near-term boost from reduced uncertainties, we remain relatively cautious over the sector’s overall prospects for 2020 and suspect that the upside may be limited.
  • Nevertheless, EY ITEM Club has modestly raised its forecast for house price gains over 2020 to 2.8% from 2.0%, and there is clearly a possibility that they could rise more than this.
  • 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 on 11 March (although a cut in Stamp Duty looks unlikely). Furthermore, mortgage interest rates are at historically low levels and there is a  real possibility that the Bank of England’s could cut interest rates in 2020. Additionally, a relative shortage of properties for sale is likely to continue to 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 – so that the upside for house prices in 2020 is likely to be limited. Additionally, while the fundamentals for consumers should still be pretty decent in 2020, we suspect that earnings growth will be below the peak levels seen around mid-2019 and that employment growth will be slower overall.

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

“The Nationwide reported house prices rose 0.5% month-on-month in January, which was a fourth successive monthly rise and the equal largest (with November) since July 2018. House prices had edged up 0.1% month-on-month in December.

“The annual rise in house prices rose to a 14-month high of 1.9% in January. This was up from 1.4% in December (the first time in 13 months that there had been an increase of 1%), 0.8% in November. 0.4% in October and an eight-month low of just 0.2% in September. September’s reading had been only just above the near six-year low of 0.1% seen in January 2019.

“The three-month/three-month growth rate in house prices jumped to 0.8% in January (the highest since March 2018) from 0.5% in December and 0.2% in November.

“The Nationwide measure has tended to be at the low end of house prices. At the top end, latest data from the Halifax put annual house price inflation at 4.0% in December (the highest since February 2018) after a 1.7% month-on-month jump. Latest data from the Land Registry/ONS put it at a 12-month high of 2.2% in November following an unadjusted 0.4% month-on-month increase.

Housing market activity spiked in December 

“UK Finance reported mortgage approvals for house purchases jumped to 46,815 in December, taking them up to the strongest level since August 2015. This was up from 44,058 in November and a 7-month low of 41,322 in October. Mortgage approvals had previously fallen back for three months running to October’s 7-month low from 43,328 in July.

“Mortgage approvals in December were highly likely significantly lifted by increased confidence and reduced uncertainties among housing market participants following the decisive General Election result. November’s jump may have been due to some house buyers were keen to get their move done before the General Election in case it had resulted in any shocks. It is also notable that employment bounced back in the three months to November after some slippage in the third quarter, although earnings growth was limited to 3.2% (down from a mid-year peak of 3.9%).

“Prior to November, mortgage approvals for house purchases had fallen back for three successive months to be at a seven-month low in October indicating that activity was being pressurised by heightened uncertainties over the domestic political situation and Brexit. It was also notable that the labour market showed signs of slippage over the third quarter after employment had reached a (then) record high in June and earnings growth hitting an 11-year high of 3.9% in the three months to July.

“Survey evidence also suggests that the housing market has got an initial lift from reduced uncertainties following the decisive General Election result. In particular, the RICS housing market survey reported that its December survey pointed “to an uplift in sentiment following the result of the General Election. Sales expectations have risen sharply and a number of key activity metrics have moved into positive territory for the first time in several months.” In particular, the survey showed that the buyer enquiries balance jumped to +17 in December from -5 in November, with interest up across all regions. Additionally, the agreed sales balance improved to +9 (from -6) which was the first positive reading since May. A balance of +31% of surveyors expect transactions will increase over the next three months.

“Additionally, Rightmove’s latest survey (covering 8 December -11 January) reported that there had been a 15% year-on-year increase in buyer enquiries and also a 7.4% year-on-year increase in sales agreed. Additionally, 65,000 properties were reported to have been marketed, the largest reported rise for the time of the year for the survey.

Outlook for house prices

“Recent firmer data and surveys suggest that the housing market may be changing up a gear after a lacklustre 2019 with particular softness around the third quarter.

“Certainly, there is compelling evidence that the housing market has had an initial leg-up from increased optimism and reduced uncertainties following the decisive General Election result as well as greater near-term clarity on Brexit with the UK now leaving the EU on 31 January with a deal.

“While we suspect that the housing market may get a further near-term boost from reduced uncertainties, we remain relatively cautious over housing market prospects over 2020 and suspect that the upside will likely be limited.

“Nevertheless, we have modestly raised our forecast for house price gains over 2020 to 2.8% from 2.0% and there is clearly a possibility that they could rise more than this. This partly reflects the fact that we have also modestly raised our UK GDP growth forecast for 2020 to 1.2% from 1.0%.

“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 on 11 March (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’s could cut interest rates in 2020.

“A shortage of houses on the market will also likely offer some support to prices. The latest RICS survey showed new instructions to sell rose in December following the General Election but this was the first increase in six months and the increase was modest. Furthermore, new instructions to sell were reported to be essentially flat in December outside of London and the South East. Consequently, the number of properties on surveyors’ books remain at historically low levels. Admittedly, Rightmove’s latest survey implied a marked pick up in properties coming on to the market after the Election through to early-January but it remains to be seen if this will be sustained.

“Meanwhile, even if ultimately successful, the Government’s recent – and ongoing – initiatives to boost house building will take time to have a significant effect so are unlikely to markedly influence house prices in the near term at least.

“However, the economy still looks set for a pretty challenging 2020 (despite our upward growth revision) so the upside for house prices is likely to be limited. Furthermore, 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 has reached record highs, latest developments for consumers have been somewhat mixed. Specifically, having improved from 0.1% in the three months to June 2018 to 2.0% in the three months to July 2019, real earnings growth eased back to 1.6% in the three months to November. We suspect earnings growth is likely to stabilise at or just below recent lower levels.

“Meanwhile, the growth in employment has slowed markedly overall since mid-2019, notwithstanding a spike in the three months to November. Indeed at 38.901 million in the three months to November, the level of employment was only 90,000 higher than it had been in the three months to June (32.811 million). We suspect employment growth will be less over 2020 than it was in 2019.”