Nationwide house price index: UK house prices grew by 2.6 per cent last year

Caitlin Morrison
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London From The Air
London house price growth was the weakest it's been since 2004 (Source: Getty)

UK house prices grew by 2.6 per cent last year, according to the latest Nationwide house price index.

This rise was "modest" compared with a 4.5 per cent increase in 2016, Nationwide said, and was in line with expectations.

"Low mortgage rates and healthy employment growth continued to support demand in 2017, while supply constraints provided support for house prices. However, this was offset by mounting pressure on household incomes, which exerted an increasing drag on consumer confidence as the year progressed," Nationwide's chief economist, Robert Gardner.

However, he added that the impact of previous policy changes, such as additional stamp duty on second homes and changes to tax deductibility of landlord expenses and lending criteria, had dampened demand from buy-to-let investors over the year.

Regional disparity

London was the UK's weakest performing region for the first time since 2004, with house prices down 0.5 per cent year-on-year.

"The significant disparity in house prices across the UK has been a recurring theme in recent years. In this respect, 2017 saw the beginnings of a shift, as rates of house price growth in the south of England moderated towards those prevailing in the rest of the country," said Gardner.

"While regional house price growth rates have converged over the past year, there remain significant differences in affordability, reflecting disparities in house price levels."

Outlook for 2018

Nationwide predicts subdued economic activity and an ongoing squeeze on household budgets will "exert a modest drag on housing market activity and house price growth", and said Brexit remains an important factor in forecasting property prices.

"Overall, we expect house prices to record a marginal gain of around one per cent in 2018," said Gardner.

"Over the longer term, once the economy regains momentum, we expect house prices to rise broadly in line with earnings (around three to four per cent per annum), though if the rate of house building fails to keep up with population growth, prices may outpace earnings once again, as they have in recent years.

"The UK housing market has been characterised by significant regional disparities in house prices in recent years and it is not clear how Brexit will impact these dynamics. Much will depend on the nature of the Brexit impact on the UK economy."

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