What can we expect next from UK house prices?

This morning has brought us an update on what the UK establishment treat as a not only a bell weather but also a cornerstone of economic policy which is of course house prices. The Halifax which of course represents Lloyds Banking Group which is a big player in the mortgage market so what is happening?

On a monthly basis, prices also fell by 0.6% from November following a 0.3% increase in both October and November; this is the first fall since June 2017.

So the headline catcher is that house prices fell in December however these numbers are a pretty erratic series so let us look for some perspective.

House prices in the final quarter (October-December) were 1.3% higher than in the previous quarter (July-September), down from 2.3% recorded in October and November,

So we move from a recorded fall to an apparent slowing which is backed up by a comparison of the annual data.

Prices in the last three months of 2017 were 2.7% higher than in the same three months a year earlier although the annual change in December was lower than in November (3.9%).

Another way of putting the apparent slowing is that at this time last year the annual rate of growth was 6.5% so there has been a decline which we expected. As it happens the annual decline is very similar to the 2.6% reported last week by the Nationwide Building Society so there is some confirmation there. However the pattern has been unpredictable as for example there was something of a rally in the autumn of 2017 in the Halifax data which was against the trend. For those who want to know an actual price or at least an average one here it is.

The average price of £225,021 at the end of the year is 2.4% higher than in January 2017 (£219,741).

The problem comes when we look at a comparison of such a number with what someone is likely to be earning. Such reports come with estimates themselves which in both cases ( Nationwide & Halifax)  have pretty much returned to the pre credit crunch highs or something of the order of a ratio of 5.5. However if we look at the official average weekly earnings figures and (perhaps generously) multiply by 52 we see that the answer of £26,520 requires multiplying by around 8.5 times to get the average house price.


For all the discussion of change this has been quite stable as this suggests.

Monthly UK home sales exceed 100,000 for the eleventh month in succession. Sales have remained above 100,000 in all months of 2017. In November they reached 104,200, the highest monthly level since March 2016……… For the past
twelve months mortgage approvals have been in the narrow range of 64,900 to 69,500.

The main change is that fewer seem to want to sell.

Turning to supply, new instructions to sell continued to deteriorate at the headline level and has now
fallen for 22 consecutive months – the worst sequence for close to eight years

Ominous perhaps.

What does the Halifax think about 2018?

Overall, we expect annual house price growth nationally to stay low and in the range of 0-3% by the end of 2018. The main driver of this forecast is the continuing effects of the squeeze on spending power as inflation has outstripped wage growth and the uncertainty regarding the prospects for the UK economy next year.

The first issue is that even they do not expect much if any which is revealing although their reasoning seems odd. For example unless the commodity price rises I looked at on Friday continue UK inflation seems set to fade especially if the UK Pound £ remains around US $1.35. Also whilst economists continue to write about uncertainty the main population sees an economy growing consistently if not that fast. Some of course will have fears and part of that will be Brexit related but currently economists are projecting their own “monsters of the id” on everyone else.

London Calling

This continues to provide what may turn out to be a clarion call. From The Times over the weekend.

Almost half of the homes on sale for between £1 million and £2 million in London have had their prices cut, with average reductions of £142,000, rising to nearly £900,000 in extreme cases.

Presumably not the £1 million homes seeing price cuts of nearly £900,000! It is not just a London thing as I note I may not be the only person who likes a slice or two of Christmas cake.

Across Britain one in three sellers reduced their asking price last year, the highest proportion since the double-dip recession of 2012. However, sellers with homes in the “marzipan layer” — those worth less than the super-prime stock of central London (the icing) but more than most of the rest of the country (the cake) — are making the biggest price cuts.

Some of the effect here has been the rise in Stamp Duty on higher-priced properties but I note that Henry Pryor is reporting a change in psychology.

But almost all the buyers are discretionary and feel there is no harm in waiting. With an uncertain Brexit around the corner, buyers feel they can sit tight or rent and still be no worse off because prices will be even lower next year.

A change in psychology may be enough in itself although real falls also usually have surveyors reducing valuations. Of course however there needs to be some perspective as some of the comments suggest.

Heck even my parents house is now only worth 98 times what they paid for it !

(Down from 100 times before the referendum) ( Anthony Morris)


So overpriced homes in London are now marginally less overpriced. I think we’ll survive this somehow. ( John B )


For those unaware this is on the edge of what is regarded as the City of London as well as being a big train and tube station. It also had a development described in the advertising like this.

The ad portrays a rich couple embarking on helicopter rides, being serviced by an astute butler and sight-seeing the capital in a Bentley. The couple also admire a sculpture of the building they have just acquired a penthouse suite in. ( h/t @econhedge and The Drum)

How is that going? From Bloomberg.

An investor who agreed to purchase an apartment at the ritzy One Blackfriars project on the banks of the River Thames is offering the two-bedroom home on the 20th floor for 1.8 million pounds ($2.44 million), more than 22 percent less than they agreed to pay for it in 2013.

Also Bloomberg has missed the currency angle as if the investor is from Asia there is likely to be a currency related loss to add to this.


Actually the main trend in the UK housing market has been something of a realignment of house price growth with both wage growth and economic growth. That is good although things not getting worse is different from things getting better. As any sustained surge in wage growth has escaped us in the credit crunch era as we mull it rumbling on at circa 2% per annum it means that more affordable homes requires lower house prices which of course is the opposite of official policy.

As for London it is being affected by international trends where capital cities are now seeing house price falls rather than rises. There will still be overseas buyers but fewer of them and thus some air seems certain to come out of the bubble. There is still an extraordinary dislocation between current prices and the finances of the vast majority of Londoners.

Philippe Coutinho

Football fans like me were subject to another burst of transfer fever over the weekend. But there is an economic effect and if we look at the initial payment of around £106 million then there are clear effects. Firstly a boost to UK exports and thereby to economic output or GDP ( Gross Domestic Product) accompanied by a boost to the exchange rate against the Euro. Over time there will be a smaller flow in those directions as the amount heads up to a maximum £142 million. In addition to this there is presumably also a boost to GDP by the purchase of Virgil Van Dijk for around £70 million by Liverpool as they spent some of the expected proceeds.

Such numbers are always estimates in the football world  but I am intrigued how the national accounts will account ( sorry) for this, as for example do they deduct the price paid by Liverpool for Coutinho? I cannot move on without pointing out that there are clear signs of inflation here as whilst Countinho has improved as a player at Liverpool not by anything like the price change.

Also whilst I am on sporting matters congratulations to Australia on their Ashes victory.





15 thoughts on “What can we expect next from UK house prices?

  1. Hi Shaun
    I suggest that in a world of perverse logic we will
    see more government incentives which are unlikely to have
    any effect, beautiful balloons bursting ahead!


    • Hi JRH

      You are kind of adding to Forbin’s reply as his song made me think of the Nimble bread balloon advert from moons ago. As to the housing market I think that the state moves will have to come from the government for a bit. Having just raised interest-rates the Bank of England wont be able to cut for a bit as it really would look like the hokey-cokey! Also it is ending new cash from the Term Funding Scheme next month so a policy reversal might even make its cheerleading supporterss wonder what the name of the game is?

  2. When the big lenders are predicting houseprices being basically stable you have to wonder. The history of the market suggests it either goes up or down (albeit mainly up), ‘flat’ periods are rare.

    • Between 2010 and 2013 things were fairly flat albeit at mega-bubble prices due to QE and 0.5%.

      Then the Osborne/Tory /BoEs Funding for Lending & Help to Sell boom came to town, and things went insane.

      Time to see if the end of Term Funding Scam, along with tightening of BTL mortgages for multi property landlords and creeping in of Section 24 will have any affect in making prices become affordable over the coming months. Sadly i doubt it but maybe enough to stop them rising.

      Maybe this one only bursts when the economy does.

  3. Shaun,
    Housing prices in London compared with Frankfurt may give an indication of bank relocations.
    To add to the complications it appears German unions now demanding above inflation pay rises – e.g. strikes at Porsche so German housing costs may increase anyway?

  4. The government, the Establishment and the banks(basically the three heads of the same monster) have an enormous problem(of their own making) on their hands. Buyers are maxed out on credit card, car loan and mortgage debt, this is only sustainable whilst interest rates are kept close to zero, so they cannot borrow more which then starves the economy of growth since new fiat creation is drying up, previously rates would have been lowered to enable higher multiples of loan advances, but this has been done to the point where unless rates go negative, it is the end of this particular road.

    Low economic growth and very high(unrecorded) unemployment means their is massive downward pressure on wages which leads to more affordability problems, this doom loop is now finally starting to show in house prices, supply will remain restricted(thanks to local planning restrictions), immigration will continue on its massive scale to provide upward pressure, and it is this pressure cooker of conflicting forces which is now beginning to bounce dangerously around the cooker. The safety valve is just beginning to vent off excess pressure, but the three headed monster is trying to turn up the gas and jam the safety valve back down at the same time.

    It won’t work because it can’t. Unless some totally new deranged economic stimulus is provided to first time buyers(which will become permanent) prices cannot continue to go up, they can just keep throwing more and more money at it, but I think low/falling wages are here for a long time – unless as I said they just go nuclear and let inflation go completely out of control.

    There are around three or four years until the next election anyway, so there is plenty of time for the Tories to consider their schedule of voter bribes.

    • Kevin, It seems that inflation is going to run away in 2018. That seems to be the outlier option, as suggested now by some macro voices. The trouble is that folk won’t hold Govt bonds at 0.01% if we are seeing 3-5% inflation so Govt is cursed there too, having to raise yields to bribe owners. So this could get interesting…

  5. Great blog as usual, Shaun. Since you mention overseas buyers in the London market, do you have any idea when one might see official estimates on purchases of UK homes by non-residents? Statistics Canada finally published initial estimates on non-resident purchases in the Canadian real estate market at the end of last year, although there is good reason to believe that these figures substantially underestimate the non-resident share of the market:

    • Hi Andrew

      There are indeed issues with such numbers likely to lead to under counting however I am pleased to see that Statistics Canada is at least giving it a go. There are plans here but as I understand it they remain plans. From a HM Parliament briefing note last July.

      “There are no official statistics on the sale of residential property to overseas buyers. Estimates have been made, but this type of research tends to focus exclusively on London.”


      “The Housing White Paper, Fixing our broken housing market (February 2017) included a commitment to make Land Registry data more available:

      In addition, HM Land Registry will make available, free of charge, its commercial and corporate ownership data set, and the overseas ownership data set. These data sets contain data on 3.5 million titles to land held under all ownership categories with the exception of private individuals, charities and trustees.”

  6. Hi Shaun

    Interesting and informative as ever,thank you.
    As we move forward and the older generation move towards retirement they are being replaced by debt laden young adults if they have been to university.
    Their employment prospects are much poorer than in previous decades in Saturdays FT there was a piece about the role of equity analyst and other such posts disappearing due to technology.
    The only reason that house prices have reached the ridiculous prices is due to irresponsible lending.
    With reference to another modern obscenity the price of average footballers Van Dyk would not have got in the reserves at Liverpool in the 70’s and 80’s.
    I had the misfortune to watch a football match on BBC on Friday night which was masquerading as the Merseyside derby and according to the hugely paid ,lying pundits (these two points are closely related) an entertaining cup tie it was dreadful I was shouting at the TV.
    The salary of the modern player is inversely proportionate to their ability,they are tactically naive,fall over with a puff of wind,are useless in the air, passing and control is awful,just before Christmas caught a replay of a 1988 Merseyside derby on BT sport it was terrific,commitment,passion,skill great goalkeeping from Southall and Grobelaar, both those sides would have hammered their modern day counterparts.
    Football has gone the way of investigative journalism and sound financial principles.
    Viv Nicholsonism has taken over the world.

    • Hi PrivateFraser

      The football issue is an interesting one. You mention 2 goalkeepers both of whom were top quality as the eccentricity of Bruce Grobelaar did not hide his quality goalkeeping.These days it is Everton who have the better prospect there and I say with some hope as Pickford will be one of the challengers for the England jersey this summer. Meanwhile Liverpool have problems at goalkeeper but up front are a team with plenty of goals in them unlike Everton.

      I watched Friday’s game too and Everton are playing classic Big Sam football which makes entertaining football unlikely yet only 2 days before Chelsea and Arsenal played out a skilful entertaining thriller.Watching the latter would have you assuming Arsenal would cruise past Forest and look what happened!

  7. It really depends on the Far East. Capital controls in China affecting buyers from Hong Kong, Singapore etc. Sadly, that is the fact. Around half of all new build flats across London have been bought by such buyers for nigh on a decade now. And although many will be leveraged, they are treated as ‘cash’ by our stats. Even worse, our developers seem to have UK finance companies trailing around with them on their investor roadshows across the Far East. I hope the Bank of England doesn’t end up with yet more egg on their faces.

    FT article from 2013 citing 75% of all new build homes in Central London going to overseas buyers. You tie your fortunes to far off events in this way, expect to be surprised from time to time.


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