Press release

19 Feb 2020 London, GB

Land Registry/ONS reports annual UK house price up to 13-month high of 2.2% in December while London prices spike

More firmer news on the housing market as the Land Registry/ONS reported the year-on-year increase in UK house prices climbed to a 13-month high of 2.2% in December, from 1.7% in November and 1.1% in October.

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  • More firmer news on the housing market as the Land Registry/ONS reported the year-on-year increase in UK house prices climbed to a 13-month high of 2.2% in December, from 1.7% in November and 1.1% in October. Prices rose an unadjusted 0.3% month-on-month in December.
  • The annual increase in UK house prices was limited for much of 2019 and 2018 by falling year-on-year prices in London. However, London prices rose 2.3% year-on-year in December, which was the strongest rise since October 2017 and a second successive annual increase. The ONS observed that “increased London house price growth may reflect a larger shift in the type of properties being sold than usual, with more sales of very high value properties.”
  • Latest data from the Halifax (especially) and the Nationwide point to a further firming in house prices in January.
  • Recent firmer data and surveys suggest that the housing market is changing up a gear after a largely lacklustre 2019 (with particular softness around the third quarter). There is certainly a fair degree of evidence that the housing market has got 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 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 the whole of 2020 and suspect that the upside may well be limited.
  • Nevertheless, EY ITEM Club has recently 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.
  • 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 very 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 Land Registry/ONS reported the year-on-year increase in house prices climbed to a 13-month high of 2.2% in December from 1.7% in November and 1.1% in October. Annual house price inflation had been as low as 0.7% in July 2019, which had been the lowest rate since October 2012. Annual house price inflation stood at 2.0% at end-2018, 4.5% at end-2017 and a peak of 5.1% in October 2017.

“House prices rose an unadjusted 0.3% month-on-month in December. This followed an increase of 0.2% in November and a drop of 0.1% in October. Prices had dipped 0.2% month-on-month in December 2018.

“The annual increase in UK house prices was limited in much of 2019 and 2018 by falling year-on-year prices in London. However, London prices rose 2.3% year-on-year in December, which was the strongest rise since October 2017 and up markedly from an increase of 0.4% in November. London house prices fell continuously year-on-year between February 2018 and August 2019, with a peak annual decline of 3.2% in May. London house prices rose 1.6% month-on-month in December unadjusted. The ONS observed that “increased London house price growth may reflect a larger shift in the type of properties being sold than usual, with more sales of very high value properties.”

“It needs to be noted that the ONS’ 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 January, 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 revamped its index earlier this year). Indeed, the Halifax reported that the year-on-year increase in house prices rose to 4.1% in January (the highest since February 2018) from 4.0% in December, 2.1% in November and 0.9% in October (which had been the lowest annual increase since April 2013). House prices rose 0.4% month-on-month in January after substantial gains of 1.8% in December (the largest increase since February 2007) and 1.2% in November. The firming in house prices has been less marked on the Nationwide’s measure, although the annual increase did climb to a 14-month high of 1.9% in January from 1.3% in December, 0.8% in November and just 0.2% in September. House prices on the Nationwide measure rose 0.5% month-on-month in January after a gain 0.1% in December.

Housing market activity spiked in December 

“Latest data from the Bank of England show mortgage approvals for house purchases rose markedly to 67,241 in December, taking them to the highest level since July 2017. This was up from 65,514 in November and a seven-month low of 65,003 in October. Mortgage approvals had previously relapsed to October’s seven-month low from a previous 2019 peak of 67,072 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. 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 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 suggests that the housing market has got at least an initial lift from reduced uncertainties following the decisive December 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” and its January survey “signal a continued improvement in market activity over the month, with indicators on demand, sales and fresh listings all moving further into positive territory.” In particular, the survey showed that the buyer enquiries balance rose to +23 in January after jumping to +19 in December from -5 in November, with interest up across the “vast majority” of regions. Additionally, the agreed sales balance improved to +21 in February from +9 in December and -6 in November, which were the first positive reading since May.

Outlook for house prices

“Recent firmer data and surveys suggest that the housing market is 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 got 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 the whole of 2020 and suspect that the upside will likely be limited.

“Nevertheless, EY ITEM Club has 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 a very real possibility that the Bank of England’s could cut interest rates in 2020.

“A relative shortage of houses on the market will also likely offer some support to prices, although more houses have recently been coming up for sale. The latest RICS survey showed new instructions to sell rose for a second month running in January and at a sharply increased rate. However, the RICS noted that “this improvement in the volume of listings coming onto the sales market follows a protracted period of falling supply, meaning average stock levels on estate agents books remain very low when placed in a historical context (at 43 properties).”

“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 1.4% in the three months to December. 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.”