House prices grew at their slowest annual rate for five years in October, Nationwide data revealed today.
House price growth slumped to 1.6 per cent last month, with prices flat month on month as the latest figures paint a miserable picture for housing activity across the UK.
October’s 1.6 per cent growth rate fell from two per cent growth in September, and is the lowest monthly rate since May 2013.
Meanwhile the average house price actually fell month on month, from £214,922 in September to £214,534 in October.
Robert Gardner, Nationwide's chief economist, expects house prices to grow by just one per cent over 2018, saying squeezed household budgets and an uncertain economic outlook has dampened demand despite low borrowing costs and high employment.
“Looking further ahead, much will depend on how broader economic conditions evolve. If the uncertainty lifts in the months ahead, there is scope for activity to pick-up throughout next year,” he added.
“The squeeze on household incomes is already moderating and policymakers have signaled that interest rates are only expected to raise at a modest pace and to a limited extent in the years ahead.”
Yesterday City A.M.’s own shadow monetary policy committee unanimously voted to hold interest rates ahead of Brexit, with the Bank of England set to deliver its verdict later today.
Howard Archer, chief economic advisor at the EY ITEM Club, said August's interest rate hike to 0.75 per cent meant house buyers would be more exposed to further rate rises, even if they prove to be incremental.
"Consumers have faced an extended serious squeeze on purchasing power, which is only gradually easing," he added. "Additionally, housing market activity remains hampered by relatively fragile consumer confidence."
However, against the background of a subdued housing market, activity among first-time buyers saw a small recovery, with Nationwide’s data showing purchases are roughly in line with pre-financial crisis levels.
“The improvement in credit availability, including the introduction of schemes such as Help To Buy, historically low interest rates, in particular fixed rate deals, together with a steady improvement in labour market conditions in recent years have all helped boost activity,” Gardner said.
But the housing market as a whole remains soft - the 1.2m transactions in the 12 months to September were 30 per cent lower than the number in 2007.
Mortgages for house movers remains subdued while buy-to-let activity has seen a significant reduction since the government upped stamp duty on such purchases.
However, Nationwide’s measure of house price inflation is lower than Halifax's measure of 2.5 per cent for the last quarter, while Office for National Statistics data pegged inflation at 3.2 per cent in August.
Ratings agency Moody's said it still expects house price growth to soften in 2019, though.
“This reflects lower demand from Brexit-related uncertainty, weak consumer confidence, low wage growth and a recent pickup in consumer inflation,” said Rodrigo Conde, assistant vice president and analyst at Moody’s.
“Specifically, migratory and rental market changes expose London and the south east to greater house price deceleration, which will slow the most given the relatively large gains made over the last decade.
“In the event of a no-deal Brexit, the macroeconomic outlook for the UK would weaken, leading to outright declines in house prices nationally.”