Despite the fact that the media continue to create doom and gloom headlines surrounding Brexit, UK house prices have remained relatively steady. The recent Nationwide housing report to the end of May 2019 makes for interesting reading and will surprise many property investors. This comes at a time when the UK government is effectively paralysed, the official opposition nowhere to be seen and constituents of the UK fighting their own agendas. So, against this political background, and with Brexit still nowhere near resolved, many would have expected UK house prices to have fallen over the last 12 months.
House prices increase year-on-year
The average UK home is now valued at £214,946 which equates to a 0.6% increase over the last 12 months. While house prices did fall by 0.2% between April and May, the longer term trend is surprisingly steady in light of so many different challenges with the economy and politics. Robert Gardner, Nationwide’s chief economist, cast a little more light on the report suggesting that new buyer enquiries and consumer confidence have been subdued over recent months. So, how have prices held up surprisingly well in light of subdued confidence?
Relatively strong employment market
Recent figures suggest that UK unemployment is near record lows despite the challenges faced as a consequence of Brexit. While in some ways you could argue the use of smoke and mirrors has assisted headline unemployment figures, the general trend has certainly been down. A relatively strong employment market will obviously assist property investment and demand for mortgage funding. How the employment market will be impacted when Brexit is eventually resolved is anybody’s guess at this moment in time. However, it is also worth noting that the UK economy has outperformed its European counterpart in recent times.
Low borrowing costs
The near historic low cost of borrowing in the UK has obviously assisted the mortgage market although first-time buyers are still struggling to raise the relatively high deposits required. That said, the number of first-time buyers in the UK reached 359,000 in the 12 months to March 2019. This is just 10% below the peak of 2006 with the main kicker obviously the low cost of mortgage finance. We have also seen a further increase in remortgaging numbers with many investors and homeowners keen to lock in relatively low fixed mortgage rates.
Sceptics will always highlight the fact that borrowing costs will eventually rise but more than a decade after the 2008 US mortgage crisis, there is no sign yet of a significant increase in UK base rates. As a consequence, and with Brexit concerns perhaps placing further downward pressure on interest rates, it is difficult to make an argument for a short to medium term return to historic levels.
Prospects for the future
Some experts have highlighted the intermittent return of relatively high LTV mortgages which played a significant role in the 2008 worldwide financial crisis. So, while many first-time buyers are struggling to raise sufficient funds to cover house purchase deposits, the trend towards higher LTVs may well assist them in the short term. Month after month since the 2016 European Union referendum, experts have been predicting a UK property market crash. It is fair to say some of the more buoyant localised property markets have deflated a little but so far there are no signs of the much discussed crash.
In the short to medium term the Nationwide does not expect a significant change in demand for UK homes. There are also suggestions that while growth will slow in the immediate future it is unlikely to dip into negative territory when looking at UK property prices as a whole. Whether we see a short-term knee-jerk reaction, as a consequence of Brexit developments later in 2019, remains to be seen. However, at this moment in time the UK property market is certainly holding its own.