As I write this, the Rightmove asking house price index has just been published, revealing a 6% monthly increase, taking the average asking price of a UK property up to over £372k.
Now, of course, an asking price doesn’t necessarily translate into a transaction price, but the fact sellers feel confident enough to increase the price they want for their properties in this environment is perhaps telling.
Nationwide’s recent house price index – covering April – showed a £3k monthly increase, up 0.5% on March, and while Halifax’s did not concur with its 0.3% drop, I wouldn’t rule out future monthly increases throughout the rest of 2023.
These recent increases have to be set against the backdrop of the last 12 months when prices have seen dips, but the fact they appear to be already reversing those drops is of interest, because it seems to be happening earlier than many commentators and economists anticipated.
Indeed, one well-known economist from the Office for Budget Responsibility (OBR), Professor David Miles, recently announced the days of ‘massive’ house prices over due to a number of reasons, suggesting changing working habits, a flattening population and a decades-long drop in borrowing costs. He said sharp house prices were now less likely in the future.
Now, far be it for me to suggest an alternative view but given the OBR itself suggested house price rises could return in 2024 and as the figures above seem to show they might have been slightly pessimistic in that regard, one wonders if there is a different conclusion to be made.
For example, while working habits have changed, there appears to be a move back towards office-based working or at least a hybrid approach, which means individuals may still need to move in order to be able to take up jobs rather than staying put.
Secondly, a flattening population does not necessarily mean a lessening of household numbers. Over the last decade we’ve seen a 6.3% increase in household numbers, up to 28.1 million in 2022 according to the Office for National Statistics, and my own feeling is that is unlikely to fall in the next 10 years.
Indeed, the forthcoming migration figures are likely to show a big increase, which again – if sustained – will mean a greater number of households in the UK, needing places to live.
Finally, the focus on borrowing costs is interesting. Yes, they have risen over the last year, and that has had an impact on the ability of some households to get onto the ladder. However, if as anticipated, inflation comes down, so will rates, plus we shouldn’t forget we have a highly competitive lending market with lenders already looking at the ways and means by which they can help people secure mortgages.
We should also not underestimate the deep-seated cultural inclination within the UK to be a homeowner. This has driven a huge amount of economic activity and it is a central tenet of the UK economy – governments are likely to pursue policies which offer hope to those wanting to get on the ladder, because they are deemed to be vote winners. I suspect that will not change.
For example, in 2022 first-time buyers were the biggest demographic purchasing homes, and that seems likely to continue this year. 100% LTV mortgages have returned in a meaningful renter-focused way, and according to Rightmove first-time buyer demand has increased recently. The government is said to be looking at an alternative to Help to Buy and the Labour Party has already announced policies focused on first-timers.
And, add into this mix, the number one reason why prices are unlikely to be falling over the medium- to long-term – the supply of property coming up for sale. The current government has already got rid of its 300k new home target by the mid-2020s and, even if we have a change of administration, being able to ratchet up the number of new homes over a short period of time is going to be difficult.
So, while we might not see ‘massive’ house price rises, I think it’s very difficult to see the drops of the last 12 months continuing far into the future, and steady rises may well remain the norm in the UK, even if they are not of the double-digit sharp annual increases we have seen at various points in the 2000s.
In my view, with supply unlikely to see stratospheric increases anytime soon, house prices seem unlikely to drop or stagnate. Given this environment, mortgage advisers will be needed more and more as lenders look to support and help first-timers onto the ladder, and the product options available to them to do this (hopefully) continue to improve.
Mark Snape is CEO of Broker Conveyancing