What can we expect from UK house prices looking forwards?

Today gives us another chance to take a look at the state of play in the UK housing market. This comes in the light of a couple of potential ch-ch-changes in the policy of the Bank of England of which the headline was last week’s rise in Bank Rate to 0.5% although of course that was only a rise from a “panic” back to an emergency level. More of that later as we look at the data from the Halifax which used to be a building society but is now part of the Lloyds Banking Group.

House prices rose by 0.3% between September and October, following a 0.8% increase in September. The average price of £225,826 is the highest on record and 2.8% higher than in January (£219,741).

The first impact is that house prices continue to rise in spite of what has become a more difficult environment for them with economic growth in annual terms having slowed and real wages having fallen so far in 2017. Indeed according to the Halifax things have a hint of a pick- up.

House prices in the last three months (August-October) were 2.3% higher than in the previous three months (May-July). This is the fastest price growth, on this measure, since January.  Prices in the three months to October were 4.5% higher than in the same three months a year earlier. The annual rate in October is higher than in September (4.0%) and at its highest growth rate since February.

The average price being the highest on record means that in terms of real wages house prices have risen by around 3% if you use the official inflation figure and they have risen slightly more than wages on their own. I was expecting things to slow down more in 2017 and whilst time is left as Muse would put it “Time is running out”.

There are some hints of a slow down as for example this.

Both new sales instructions and buyer enquiries fall in September. Shortage of homes for sale continues
to limit activity with the balance of new sales instructions for home sales falling for the 19th consecutive month
in September.

Also it looks as though sentiment is seeing some shifting sands.

Despite the recent rise in house prices confidence in UK house prices has fallen to its lowest level since
December 2012, according to the latest Halifax Housing Market Confidence Tracker. The survey, which
tracks House Price Optimism (HPO1 – consumer sentiment on whether house prices will be higher or lower in a
year’s time – has dropped 14 points from April 2017 (+44) to October (+30), matching the record fall seen
following the EU referendum result.
The HPO index has also fallen by 38 points since the peak of +68 in May 2015 around the time of the General

Bank of England

Last week brought us not only a Bank Rate rise to 0.5% but also this from Governor Carney.

I stressed in my opening remarks, our forecast is conditioned on a market curve which has two
additional rate increases over the forecast horizon, and we, in fact, need those two additional rate
increases in order to get that return of inflation to target.

So we received Forward Guidance that two more interest-rate increases can be expected to raise Bank Rate to 1% although they were some way in the distance and therefore may even be beyond his term as Governor which ends in the summer of 2019. Thus the guidance was not only rather weak and insipid it would bring one of the weakest interest-rate rise cycles the UK has ever seen especially as we note that the current expansion is mature so a recession of some sort is likely in the time frame.

This meant that some mortgage-rates did change as this from Lloyds Banking Group indicates others may not.

  • Lloyds Bank Homeowner Variable Rate currently at 3.74% will increase by 0.25% to 3.99%
  • Lloyds Standard Variable Rate currently at 2.25% will increase by 0.25% to 2.50%
  • Lloyds Buy to-let Variable Rate currently at 4.59% will increase by 0.25% to 4.84%

The others may not above, comes from the fact that a benchmark or guide to fixed-rate mortgages is the five-year Gilt yield which as I pointed out on Friday fell rather than rose. At 0.71% it is 0.11% below where it was pre announcement.

If we look ahead to 2018 we expect another of the legs supporting UK house prices to begin to weaken somewhat. Here is the letter from the Chancellor of the Exchequer on the subject  of the Term Funding Scheme.

I am therefore willing to authorise an increase
in the total size of the APF used to finance the TFS from £100 billion to £115 billion, in line with the current profile of TFS drawings and based on a drawdown window that will close at the end of February 2018.

So we see two things here. Firstly we get a clue as to how house price growth has carried on in 2017 as we note that draw down of this bank subsidy has been faster than expected leading to the potential increase. I also wonder if this announcement was a sot of “come and get it the waters’ lovely” to the banks? If we move on to the letter from Governor Carney we see that beneath all the rhetoric and hot air about business lending that reality is very different.

New loan rates have declined substantially over the past year and so has the rate charged on the stock of Standard Variable Rate mortgages.

So we have a confession that the Bank of England gave house prices another push and that it put out a “last call” to the banks for cheap funding in August, But as we look ahead the doors close next February so from then the stock will exist but then begin to fade as new flows stop. Is the objective to try to keep some sort of party going until the end of the Governor’s term?

Regional Differences

If we move to the official data series we see that as we disaggregate by country we begin to see wide variations.

 the average price in England now £244,000. Wales saw house prices increase by 3.4% over the last 12 months to stand at £150,000. In Scotland, the average price increased by 3.9% over the year to stand at £146,000. The average price in Northern Ireland currently stands at £129,000, an increase of 4.4% over the year to Quarter 2 (Apr to June) 2017.

The situation in Northern Ireland was particularly different to much of the UK as the previous peak was at £225,000 showing how house prices there hit something of a nuclear winter between the autumn of 2007 and the spring of 2013 when the average price dipped below £100,000. If you switch to Euros then prices in Northern Ireland fell more than in the south.

If we move onto borough or county comparisons it is hard to put these two in the same solar system let alone island.

In August 2017, the most expensive borough to live in was Kensington and Chelsea, where the cost of an average house was £1.2 million. In contrast, the cheapest area to purchase a property was Blaenau Gwent, where an average house cost £82,000.


As we look back on 2017 so far we see that the Bank of England until last week was full steam ahead in terms of propping up house prices. Last week was a change albeit a minor one in the grand scheme of things and will be backed up by the end of the Term Funding Scheme next February. However the government seems to be singing to a different beat as this from the 2nd of October makes clear.

The government will find an extra £10bn for the Help to Buy scheme to let another 135,000 people get on the property ladder, Theresa May has said.

It is hard not to think of the game snakes and ladders at this point. But I still continue with the view that house price growth should slow and probably go negative on a national level. In some places that is very welcome with London to the fore in others such as Northern Ireland less so but it will be a while anyway before things filter out to there. Meanwhile I am also reminded of this from the 17th of October.

Buyers of a Notting Hill mansion going on sale this month for £17 million will have to pay in Bitcoin, in what is believed to be a first for London.

The owners of the six-storey stucco-fronted home near Portobello Roadwill accept only the digital currency as payment and will not take cash.

At the current exchange rate the price is equivalent to about 5,050 bitcoin,

You see it is more like 3120 Bitcoin now. So have we seen house price disinflation and indeed deflation in Notting Hill Bitcoin style?



19 thoughts on “What can we expect from UK house prices looking forwards?

  1. I think the coming budget will dictate whether prices fall a little or a lot from 2018 onwards.

    Bringing in Section 24 early and for basic rate taxpayers is something i’m half expecting … this will create forced sellers. And is one way of getting investment in business as opposed to housing which the papers are claiming Hammond is wanting.

    The extra 10bln for HTB is just for the extension, doesnt add any extra into the kitty for now, but i do wonder if this may NOT get a mention as everyone in the MSM tore it apart during their recent conference.

    • Hi Arthur

      Well the plans of Sajid Javid seemed to get kicked into the long grass so we will have to wait and see what the Budget brings. Currently the government has got itself in several self-inflicted crises so I doubt much planning is going on. An acceleration of Section 24 create something of a stir and for those wondering what it is here is the answer from the UK government website.

      “This measure will restrict relief for finance costs on residential properties to the basic rate of Income Tax. This will be introduced gradually from 6 April 2017.

      Finance costs includes mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

      Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

      Landlords will be able to obtain relief as follows:

      in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
      in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
      in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
      from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction”

        • Had I known that at the time I would have taken a commercial mortgage on my house through an off the shelf ltd company and then rented it back to myself for the value of the mortgage payments.

  2. “In August 2017, the most expensive borough to live in was Kensington and Chelsea, where the cost of an average house was £1.2 million.”
    Made me smile, I would love to see a house price that low in that borough!

    • Hi Bez

      That is a good point and I will make a mental note to raise that next time I get an opportunity. Rightmove have some numbers for Chelsea on its own which look rather different.

      “The majority of sales in Chelsea during the last year were flats, selling for an average price of £1,708,606. Terraced properties sold for an average of £4,243,663, with semi-detached properties fetching £6,170,825.

      Chelsea, with an overall average price of £2,385,454 was more expensive than nearby The Boltons (£1,572,657), West Brompton (£1,553,112) and Worlds End (£1,422,696).”

  3. Hello Shaun ,

    As the past 20-30 years economy has been built on ever inflating house prices ( yah we had a couple of drops but the trend is clear ) then , as most MSM and the public believe , we will have a major recession if they drop …

    well if thats the case , then I think they will pull all the plugs, throw in the kitchen sink and do absolutely anything except face the reality that houses are far far too expensive !

    Well we cant pay decent wages , and we make so little that anyone wants , what else is there?

    pay our way when we can get the RoW to buy our paper?

    It will not end well


    • Hi Forbin

      I fear that you are likely to be proved right in your view about our establishment. On a related topic I got some of the new plastic tenners today out of a cashpoint and I have to say it is a bit like Monopoly money isn’t it?

  4. I have nothing of value to add because I simply don’t understand the housing market, especially London. As far as I can tell rising house prices became good inflation and were allowed to let rip by failing to use the tax system correctly to prevent a bubble. It is a bubble isn’t it?

  5. The conservatives have got a couple of years to plug this Titanic of a housing market and stop it taking down their chances of getting re-elected, can’t see it myself, there are just too many headwinds to to rising house prices: low/non existent/negative wage growth, high unemployment(real world not government fantasy world), many jobs being created are temporary/minimum wage, high consumer debt levels(credit cards and car loans), inflation in food and energy(caused by the continued depreciation of sterling and Carney’s refusal to raise rates) further cutting consumer disposable incomes,and stricter lending rules by banks will stifle further rises.(If falls do start to accelerate, expect a response from the government along the lines of the Irish government’s instruction to the Bank of Ireland to relax lending criteria!!!)

    I think any falls will be muted due to shortages of properties in many areas and the willingness of first time buyers to buy any dips, desperate as they are,in their Pavlovian response, being conditioned by their own experience and their parents advice to buy at the first available opportunity before prices run away from them.

    Bank of mum and dad will be providing large sums towards first time buyers deposits for their kids, also helping to buffer falls.

    Labour with its false hopes for the young disenfranchised , students up to their ears in debt before they have even got a job, and all those who work in the public services, are going to be a shoe in.

    Corbyn is almost assuming a messianic like aura to his followers, who are so desperate to believe in a better future, they are investing all their hopes and dreams in him.

    • Hi Kevin

      The feeling that for house prices the only way is up has become widespread. I mean what to people think houses are equities? 🙂 The consequences of all the QE and monetary easing are becoming ever more obvious for those that bother to look.

  6. Great blog as always, Shaun.
    Out of interest, I deflated the UK a house price by the CPI to see what happened to real housing prices from January 2005 forward. The price correction at the time of the financial crisis comes out even more starkly than looking at the nominal price series, with a drop of 22.4% from the September 2007 peak to the March 2009 trough, or 15.6% at an annualized rate. From March 2009 to August 2017, real prices have increased by 20.9%, or by 0.66% at an annualized rate, so real house prices in the UK have still not recovered to their September 2007 peak. This is not a bad thing, if one believes that house prices then were way out of line with other consumer prices.
    It would be interesting to see if the peak and trough of the series changed if one used seasonally adjusted data. I don’t believe that the ONS seasonally adjusts their housing price series and I don’t have the software to seasonally adjust their series myself.

    • Hi Andrew

      That is an interesting way of looking at it but your point about “way out of line” is well made as in some things it is nice to regain a peak ( such as GDP per capita) but this is not one of them. To my mind the most revealing measure is to compare house prices with real wages.

      • This doesn’t work very well as it takes no account of cheaper money via monetary policy which enables purchasers to pay more for houses on lower real wages as the monthly payment still manages to fall and that’s before we get into 40 year mortgages!

    • If you use the real inflation measure of RPI to include housing costs the increase is circa 12% so well below the 2007 peak.

  7. The housing market can only keep rising courtesy of increased lending or increased duration mortgages,real wages are falling,young people are loaded up with student debt and poor employment prospects.
    I have underestimated people’s stupidity with regard to acceptanceofdebt slavery for over 20 years..so I will probably continue to be wrong.

  8. The Saudis’ are after $800 billion of various princes’ ill gotten gains. Expect a lot of high price property up for sale in London, further deflating the property bubble collapse that began at the end of 2015.

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