Press release

2 Apr 2020 London, GB

UK house prices reach 26-month high but outlook remains challenging – EY ITEM Club

The Nationwide reported house prices rose a surprisingly strong 0.8% month-on-month in March. This was the strongest monthly increase since December 2017.

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  • The Nationwide reported house prices rose a surprisingly strong 0.8% month-on-month in March. This was the strongest monthly increase since December 2017. March marked the sixth successive monthly rise in house prices – the first time this has happened since May 2016.
  • This lifted the annual increase up to 3.0%, which was the highest since January 2018, and up from 2.3% in February. It had ended 2019 at 1.4% and has been on an upward trend since hitting an eight-month low of 0.2% last September. The three-month/three-month rise in house prices climbed to 1.3% in February (the highest since May 2016) from 1.1% in February and 0.2% in November.
  • The housing market had a leg-up in late-2019 and at the start of 2020 from increased optimism and reduced uncertainties following December’s election (reinforced by greater near-term clarity on Brexit with the UK having left the EU on 31 January with a deal). The Bank of England reported that mortgage approvals for house purchases rose markedly to 73,546 in February, taking them to the highest level since January 2014.
  • The early-2020 upturn in the housing market is now being brought to an abrupt halt by the impact of coronavirus on the economy, households and people’s movements. Not surprisingly, a report released by Hometrack on 26 March reported that housing demand was down 40% over the past week and that “demand is set to fall further now the UK is moving into a 3+ week period of partial lockdown”.
  • Indeed, the housing market looks set to be essentially at a standstill for the next few week at least. 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, including estate agents and surveys as well as potential buyers.
  • The Nationwide observed that the shortage of transactions over the coming months will make gauging house price trends difficult.
  • The expectation has to be that house prices will come under significant downward pressure from a sharp rise in unemployment and people’s incomes being hit (despite the Government’s measures) as well as sharply 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 on the economy, the anticipated rise in unemployment and the hit to many people’s incomes, the housing market looks unlikely to return to the levels seen at the start of 2020 for some time.
  • How quickly house prices start to recover will clearly depend on just how big a near-term hit they take, and then how well the economy rebounds from the impact of coronavirus – EY ITEM Club expects a decent recovery to start in the second half of 2020 that will continue in 2021 – and how quickly the labour market recovers. 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 rose 0.8% month-on-month in March, which was the strongest month-on-month increase since December 2017. This followed month-on-month increases of 0.3% in February and 0.5% in January.

March marked the sixth successive monthly rise in house prices – the first time this has happened since May 2016.

The annual rise in house prices climbed to 3.0% in March, which was the highest level since January 2018. It was up from 2.3% in February, 1.9% in January, 1.4% in December and an 8-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 accelerated to 1.3% in March (the highest since May 2016) from 1.1% in February, 0.8% in January, 0.5% in December and 0.2% in November.

The Nationwide commented that the cut-off point for its survey is just before the end of the month so the survey would not have fully captured developments after the Government imposed the lockdown.

Housing market had picked up markedly at start of 2020 but already evidence that coronavirus is affecting activity

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 data provide further evidence that the housing market was benefitting markedly early on in 2020 from increased confidence and reduced uncertainties following December's election. The February RICS survey also 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”.

However, there were already signs in the surveys that coronavirus was starting to have some impact on housing market sentiment in February. The February RICS survey also observed that “although near term sales expectations remain positive, optimism has moderated somewhat, with anecdotal evidence suggesting concerns over the economic impact of the coronavirus are weighing on the outlook to some extent.”

It is clear that housing market activity has taken an increasing hit from coronavirus during March, reflecting the mounting restrictions on people’s movements as well as the hit to confidence and economic activity. Hometrack reported on 26 March that demand for houses was down 40% over the past week and that “demand is set to fall further now the UK is moving into a 3+ week period of partial lockdown.”