According to the Nationwide House Price Index, UK house prices increased by 1% in the month to April and 10.5% year on year. UK house prices are now just 10% below the peak in 2007. The average house price is £167,802
“The strong rebound in house prices over the last year has taken place within the context of a subdued mortgage market, with the number of mortgage advances across the industry still well down on pre crisis norms.” Martin Gahbauer, Nationwide's Chief Economist, said
“The important driver of rising house prices has been the low level of stock for sale, as many homeowners and buy-to-let landlords continue to wait for prices to recover to peak 2007 levels before deciding to sell up or move.”
The very low level of interest rates has been supportive of this wait-and-see approach, particularly in the buy-to-let sector. Many landlords with base rate trackers and are now earning significantly higher net rental income than a few years ago. As a result, most can easily afford to wait for prices to recover further before selling.
The recovery in house prices has taken place against a back drop of low interest rates and a low level of activity. Significantly according to the Nationwide data house prices have now returned to a trend rate of growth reflected by the real long term real house price trend rate.
Historically, the UK house price to incomes ratio has averaged four times income but current levels suggest the ratio remains high above five times. Of itself, this would be an inhibitor to price improvement but the low level of base rates and therefore negative real rates means that the cost of debt service to income ratio remains very low particularly for this stage in the cycle.
The big factor change in this recovery is the base to market presented by the buy to let sector. This and the reluctance of the banks to move aggressively where LTV ratios are high or underwater. Low base rates imply debt service is adequately covered. Banks and buy to let owners have no rush to transact.
Nationwide : House price inflation reaches double digits.
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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines. UK Economics news and analysis : no politics, no dogma, no polemics, just facts.
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