- The Nationwide reported UK house prices unexpectedly rose 0.7% month-on-month in April. This followed an increase of 0.8% in March and caused the annual rate of increase to rise to 3.7%, which was the highest since February 2017.
- Significantly, Nationwide observed that the impact of the coronavirus pandemic is not fully captured in its April data. This is because its index is constructed using mortgage approval data, and there is a lag between mortgage applications being submitted and approved.
- Housing market activity improved early on in 2020 with the Bank of England reporting mortgage approvals rising markedly to 73,546 in February, taking them to the highest level since January 2014. The housing market had got a leg-up at the start of 2020 from increased optimism and reduced uncertainties following December’s decisive General Election result.
- However, the late-2019/early-2020 upturn in housing market activity has been brought to an abrupt halt during March by the impact of coronavirus on the economy, households and people’s movements.
- Indeed, the housing market looks set to be essentially at a standstill for the next few weeks at least.
- The EY ITEM Club believes house prices could fall back 5% over the next few months. The expectation is that house prices will come under downward pressure from a sharp rise in unemployment and people’s incomes being hit (despite the Government’s supportive measures) as well as lower consumer confidence and increased caution.
- Once restrictions start to be lifted on people’s movements, housing market activity should progressively pick up. Even so, given the impact of the crisis on the economy, the likely substantial rise in unemployment and the impact on many people’s incomes, the housing market looks unlikely to return to the levels seen at the start of 2020 for some time. Very low borrowing costs with the Bank of England taking interest rates down to 0.1% should provide some support.
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
The Nationwide reported house prices unexpectedly rose 0.7% month-on-month in April, which followed a gain of 0.8% in March (the sharpest monthly rise since December 2017) and was a seventh successive increase.
The Nationwide had reported regarding the 0.8% month-on-month rise in house prices in March that the cut-off point for its survey was just before the end of the month, so the survey would not have fully captured developments after the government imposed the lockdown.
The annual rise in house prices rose to 3.7% in April, which was the highest since February 2017; it was up from 3.0% in March, 2.3% in February, 1.9% in January, 1.4% in December 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 rose to 1.5% in April from 1.3% in March (the highest since May 2016).
Significantly, the Nationwide observed that the impact of the coronavirus pandemic is not fully captured in its April data. This is because its index is constructed using mortgage approval data, and there is a lag between mortgage applications being submitted and approved.
Specifically, Nationwide reported that around 80% of cases in its April sample relate to mortgage applications that commenced prior to the lockdown, and hence before the full extent of the impact of the pandemic became clear.
Housing market activity comes to a standstill after early-2020 pick-pp
Prior to the negative impact from coronavirus, the housing market had benefitted markedly early on in 2020 from increased confidence and reduced uncertainties following December's election. The latest data from the Bank of England shows mortgage approvals for house purchases rose markedly to 73,546 in February, taking them to the highest level since January 2014. This was up from 71,344 in January, 68,122 in December, 66,074 in November and a five-month low of 65,327 in October. The February RICS survey reported that “new buyer enquiries, agreed sales and fresh listings all reportedly increased over the survey period, extending a run of positive readings going back to December.
Latest surveys and reports clearly show that housing market activity took an increasing and substantial hit from coronavirus during March, reflecting the restrictions on people’s movements as well as the impact on confidence and economic activity.
The Government has advised homebuyers and renters to delay moving as much as they can while the emergency measures are in place. The Government has further stated that no visitors are allowed to visit properties while “stay-at-home” measures are in force. Meanwhile, some mortgage lenders have started to temporarily restrict or even decline new mortgages.
Zoopla, the property portal, reported that demand for houses fell by 70% over March, with the decline bottoming out in early April and since edging back up, with the result that in latish-April, demand was about 60% lower than at the start of March. Meanwhile, agreed sales were reported to be running at about one-tenth of their normal level for the time of year. The number of houses for sale is only about 4% lower than at the start of March. Zoopla also reported some 373,000 property transactions worth a combined value of £82 billion are on hold due to coronavirus.
The Halifax observed that the housing market started March similarly to early-2020 with sustained buyer and seller activity, but it ended the month in very different territory due to coronavirus and the country’s response.
The March RICS survey observed that “having started the year showing a marked pick-up in momentum, sentiment across the UK housing market predictably deteriorated sharply in March as highlighted by the latest RICS UK Residential Survey results. Government measures introduced to combat the spread of the coronavirus have required estate agents to close their offices, meaning much activity has effectively been frozen over the coming months. The situation is evolving rapidly, and it remains unclear how long such restrictions will remain in place. However, as is the case across many sectors of the UK economy, these closures are going to take a significant toll on the outlook for the market this year.
Both the Halifax and the Nationwide have observed that the shortage of transactions over the coming months will make gauging house price trends difficult.