House prices grow at slowest rate for five years - ONS
House prices rose at their slowest rate since August 2013, official data showed on Wednesday, as weakened consumer confidence and rising interest rates dampened demand.
According to the Office for National Statistics’ UK house price index, the average price of a house rose by an annual 3.2% in August, the smallest rise since August 2013 and down on July’s 3.4% improvement.
That was, however, ahead of most analysts’ expectations, who were looking for an increase of around 2.8%.
On a monthly basis, the unadjusted official house price index rose by 0.2% month-on-month. In seasonally adjusted terms, prices rose by 0.3%.
The downward pressure is coming primarily from London - where prices fell by 0.2% - and the south east, as once red-hot markets cool. Mike Hardie, head of inflation at the ONS, said: “UK house prices again increased across the year with growth particularly strong in the east and west Midlands. We continued to see a slowdown in London and the east of England.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The official measure of house price growth has continued to exceed the Nationwide and Halifax measures, but its downward trend is still prominent and its relative strength likely reflects lingering problems with the data for new build properties.”
Tombs said he expected further cooling throughout 2018, adding: “The recent jump in swap rates will filter through to mortgages rates soon, constraining the amount that homebuyers can borrow.
“What’s more, many buyers will likely defer purchases, as they did in 2016, until some clarity emerges regarding Brexit, forcing sellers who need to move to reduce asking prices. In turn, negligible growth in house prices will encourage households to save more and will strength the case for the Monetary Policy Committee to hold back from raising the bank rate again within the next six months.”
Howard Archer, chief economic advisor to the EY ITEM Club, agreed, noting: “We suspect that the housing market will be relatively lacklustre over the coming months, although there are varying performances across regions. We expect house prices over 2018 will be limited to around 2.5% [and] expect a similar rise in 2019.
“Consumers have faced an extended serious squeeze on purchasing power, which is only gradually easing. Additionally, activity remains hampered by relatively fragile consumer confidence and limited willingness to engage in major transactions.
"House buyers will also like be concerned about further interest rate hikes over the coming months, even if they are likely to gradual and limited.”