The latest seasonally adjusted Nationwide quarterly house price index (released on 28th March 2013) shows that UK house prices were marginally up (0.8% q-o-q) in 2013q1, finally bringing annual growth into positive, albeit muted, territory at 0.2%. Halifax reports a similar (although slightly stronger) trend, with house prices in 2013q1 up 1.2% in the quarter and 1.1% up on the year.
House price growth is now gradually gaining momentum. While there remain some real headwinds to a full-blown recovery, some optimism about a turnaround in the housing market is finally coming through. Indeed, recent RICS surveys on the UK housing market indicate a recovery in key leading indicators on activity and expectations. The March 2013 survey, for instance, shows a rise in new buyer enquiries as well as newly agreed sales. While there was no change in the number of new instructions in March, the overall balance on this measure was positive. Expectations were upbeat, with most surveyors anticipating higher prices and activity in the next 12 months (although the housing market is expected to stay broadly flat in the next three months). The headline national price balance improved from -7 to -1 i.e. 1% more surveyors reported price falls rather than increases in the previous three months (with 65% of surveyors reporting no change in prices) making this a fairly flat price trend. However, with the leading indicators now starting to record some improvement, it is only a matter of time before the price trend gradually picks up too.
In contrast to our earlier view of a flat housing market in 2013, we now expect some improvement in activity and muted rise in house prices in the year. This slightly more benign outlook is due to two key factors. First, the government’s Funding for Lending Scheme is estimated to have had some early impact on secured lending to individuals (primarilyresidential mortgages) despite some fall back in the first two months of this year. Going forward, we expect the Funding for Lending scheme to increase the availability of credit which, in the last few years, has been one of the largest bottlenecks to buyer demand and house price growth.
The second bottleneck to a revival in buyer demand has been prohibitively large deposits required by banks for residential mortgages. The newly announced Help to Buy Scheme, detailed in the April Budget, attempts to rectify this by assisting at least those credit-worthy buyers purchasing properties valued up to £600,000. With buyers now required to stump up only 5% of the full deposit, with the government providing around 15% as a loan, buyers are now able to take advantage of lower mortgage rates typically associated with lower LTVs. This allows buyers – both first-time and those remortgaging – to take that next step on the property ladder, thereby stimulating activity and demand. Although the government is hoping to kick-start construction activity via these schemes, the reality is that in the short-term supply of homes will be fairly fixed. And with interest rates still ultra-low, there is little danger of repossessions flooding the market supply either. Thus, this expected rise in buyer demand can only push prices upwards in the next few months.
Overall, we now expect an annualised rise of 0.3% in UK house prices by the end of 2013 rather than the decline of 0.4% we had previously expected. Even so, it is important to acknowledge persistent underlying weakness in buyer demand in terms of a subdued labour market and weak real incomes that would present a real risk to the baseline outlook in the next few quarters.