By continuing to use this site you consent to the use of cookies on your device. Find out more about our cookie policy and the types of cookies we use by clicking here

House Prices Continue to Rise

There's an interesting disparity between the most popular house price indices, with today's Halifax figures looking more bullish, but which should we believe?

David Brenchley 7 November, 2017 | 11:39AM

For sale signs

Weak supply continues to drive house prices higher, according to the latest Halifax House Prices Index. The annual rate of growth in October was 4.5%, up from 4% in September.

In the three months to October, prices were 2.3% higher than the previous quarter, while they also ticked up 0.3% between September and October. The average house price is now at a record high of £225,826.

“The fact that the supply of new homes and existing properties available for sale remains low, combined with historically low mortgage rates and a high unemployment rate, continues to support house prices and is likely to do so over the coming months,” says Russell Galley, managing director of Halifax Community Bank.

However, the Halifax index strikes a stark contrast from other measures. Nationwide’s index showed annual growth of 2.5% in October; Rightmove’s just 1.4%.

Pantheon Macroeconomics points out that Nationwide and Rightmove’s quarterly numbers of 0.8% and 0.25 respectively were also well below Halifax’s. “The Halifax data are particularly volatile, so we’re inclined to place more weight on the Nationwide and Rightmove measures,” adds Samuel Tombs, Pantheon’s chief UK economist.

How Did the Interest Rate Rise Affect the Figures?

Last week, the Bank of England raised interest rates for the first time in a decade to 0.5%. This has meant mortgage rates increased, though Jonathan Samuels, chief executive of property lender Octane Capital, notes they are still “incredibly low”. Galley says he does not anticipate the rise will be a barrier to buying a house.

Lucy Pendleton, founder director of independent estate agent James Pendleton, meanwhile, does not believe the fact that the Bank’s move was so well-telegraphed had buyers rushing to snap up the best mortgage rates before they rose because approval rates were down.

“We know stiff competition for homes exists but to see approvals and prices diverge in such dramatic fashion is surprising,” she says.

The Outlook for 2018

While Galley reckons similar trends in house price growth will continue over the coming months, consumers are not so sure. Halifax’s recent House Price Optimism survey, which tracks sentiment on whether prices will be higher or lower in a year’s time, dropped 14 points from +44 in April to +30 in October. This is the lowest level in five years and is the largest fall in sentiment since the Brexit vote last June.

Samuels thinks much will depend on inflation, which, combined with low wage growth, continues to stretch household budgets. "The more squeezed people feel, the more likely they are to put property purchases on the back burner,” he says. “In this regard, the performance of the jobs market in 2018 will be critical."

Tombs says he expects house prices to flatline over the next 12 months, as real wages have further to fall and the Bank’s Term Funding Scheme will end in March, meaning mortgage rates will rise.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author David Brenchley

David Brenchley  is a Reporter for Morningstar.co.uk