Property prices in the UK increased by 1.3% in June but the underlying pace of growth is slowing with year on year prices down to 8.4% from 9.2% in May, the lowest since July 2015.
This takes the average price to £216,823 and the data from the Halifax house price index also shows that quarterly growth was 1.2%, also down, compared to 1.5% the previous month and the lowest since December 2014.
‘House prices continue to increase, albeit at a slower rate, but this precedes the European Union referendum result, therefore it is far too early to determine any impact since,’ said Martin Ellis, Halifax housing economist.
He pointed out that the month on month changes can be erratic and the quarter on quarter change is a more reliable indicator of the underlying trend.
The figures show that despite Brexit the UK housing market is fundamentally strong, according to Russell Quirk, chief executive of eMoov.
‘With a continuing, acute shortage of new housing being built and a growing population even if immigration numbers are now curtailed, the demand and supply imbalance and the prospect of even low interest rates will underpin the market,’ he said.
David Cheetham, market analyst and FX broker at XTB, pointed out that the month on month rise could be regarded as unexpected following an increase of just 0.6% the previous month. ‘The rise is somewhat surprising considering the impact on house building shares and property funds that has been seen following Britain’s decision to leave the EU last month,’ he explained.
‘The worst hit shares in the FTSE100, in both the immediate aftermath and days that followed the Brexit were in the building sector with the majority of observers forecasting the decision to be negative for UK house prices. So far this week numerous asset managers have taken the steps of suspending trading in their property funds as withdrawals have surged amongst jittery investors,’ he pointed out.
Sales should start to pick up in the coming months, according to Rob Weaver, director of investments at property crowdfunding platform Property Partner. ‘The fundamentals in the housing market remain unchanged. People still need a roof over their heads. There’s been a stand-off between sellers and buyers with transactions dropping off since the stampede in March to beat the stamp duty deadline. But sales should start to pick up in coming months with the weight of uncertainty now partially lifted,’ he said.
‘While people clearly delayed house purchases in the lead-up to the referendum, that backlog in transactions should unwind through the second half of the year. Life decisions like moving house can’t be put on hold forever. During periods of volatility in the stock and currency markets, investors tend to prefer assets which can provide a reliable income, combined with lower risk to preserve their wealth. For investors, residential property offers both of these attributes,’ he pointed out.
‘Historically, residential property has been the best performing and lowest risk of all the major asset classes. Since 1973, through oil shocks, recessions, dotcom bubbles and the global financial crisis, the UK residential market has seen no five year period with negative total returns,’ he added.
But Ben Madden, managing director of London estate agents Thorgills, believes that the June price rise should be taken with a pinch of salt as the figures relate to the period before the referendum.
‘In the wake of the surprise vote for Brexit, the sales market has by no means imploded. While the vote to leave the EU came as a shock, the mere fact that we had a result was as if a weight had been lifted and people started to make firm buying decisions again,’ he said.
‘In the week after the referendum result, there was an immediate uplift in new sales instructions and an increase in buyer registrations. Despite widespread predictions that sales activity would drop off and sellers would have to accept price reductions, that simply hasn’t materialised,’ he pointed out.
‘It’s important to remember that people will always have to buy and sell, irrespective of market conditions. That appears to have been the case on this occasion, too. What we anticipate is a reduction in window shoppers, those less motivated buyers with lists of property requirements as long as your arm, that inevitably decide to stay put,’ he explained.
‘But we are seeing strong signs that committed buyers and sellers are now carrying on with their lives. The prospect of a cut in interest rates is providing a further incentive,’ he added.
The quarter and annual figures are more indicative of what is happening in the market, said Mark Posniak, managing director of Dragonfly Property Finance. ‘The June uptick in prices was a surprise but on a quarterly and annual basis there has been a moderation in price growth, and this is a much better reflection of where the market is at. Few will pay much attention to the June price rise. What matters is where the market goes from July onwards and that’s the great unknown,’ he pointed out.
‘With the high level of political, economic and market uncertainty at present, it’s hard to know where the property market is headed. What we can be sure of is a degree of volatility in the months ahead. The Bank of England has made it clear it will do whatever it takes to help stabilise the market. It has already made another £150 billion available to banks and an interest rate cut is a strong possibility this month,’ he explained.
‘A further cut in interest rates would certainly inject a degree of confidence into the property market. Even without an interest rate cut, there are strong structural reasons for why a major correction in the property market is by no means certain. Employment is still high, the cost of living low, while the sheer lack of supply has the potential to support house prices, even if demand drops off. Ultimately, the property market at present is one big guessing game,’ he added.
Jonathan Hopper, managing director of the buying agents Garrington Property Finders, warned that buyers are already reacting as if prices are about to fall. ‘Many of those who have to sell are starting to offer discounts, often big ones. Sophisticated, opportunistic buyers smell blood in the water and are beginning to swoop. And while demand from mid-market buyers is hardly robust, many of those who deferred buying during the referendum campaign are coming off the fence as they see price reductions are there for the taking,’ he said.
‘In the space of a fortnight the property market has reversed its polarity from a seller’s to a buyer’s market. This Halifax data is likely to represent the high water mark for prices this year, but now serves as little more than a historical record of the rising market’s last hurrah,’ he added.