20 December 2017
- House price growth in 2017 remained in 2-4% range throughout 2017 in line with our expectations
- 2017 saw marked slowdown in house price growth in London
Looking back on the housing market in 2017, Robert Gardner, Nationwide’s Chief Economist, comments: “Annual house price growth remained in the 2-4% range throughout 2017*, in line with our expectations and broadly consistent with the 3-4% annual rate of increase we expect to prevail over the long term, as this is also our estimate for earnings growth over the long run.
“Nevertheless, this marked a modest slowdown from the 4-6% rates of house price growth recorded in 2016. 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.
“The impact of previous policy changes (including additional stamp duty on second homes, changes to tax deductibility of landlord expenses and lending criteria) meant that demand from buy to let investors remained relatively subdued.
2017 across the regions
“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. London saw a particularly marked slowdown, with prices falling in annual terms for the first time in eight years in Q3, albeit by a modest 0.6% (indeed, London was the weakest performing region for the first time since Q3 2005).
“Nevertheless, large divergence in house price levels remained in evidence, which in turn translated into large differences in housing affordability across the UK. House prices in London were still more than 50% above their pre-2007 levels, while in Wales, Scotland and parts of northern England, prices were still around 5% lower than the levels recorded a decade ago. We will explore these disparities in affordability in more detail in our December house price release.”
Looking ahead to house prices in 2018, Robert Gardner continues: “How the housing market performs in 2018 will be determined in large part by developments in the wider economy. Brexit developments will remain important, but hard to foresee.
“We continue to expect the UK economy to grow at modest pace, with annual growth of 1% to 1.5% in 2018 and 2019. Subdued economic activity and the ongoing squeeze on household budgets is likely to exert a modest drag on housing market activity and house price growth.
“Nevertheless, housing market activity is expected to slow only modestly, since unemployment and mortgage interest rates are expected to remain low by historic standards (even if the Bank Rate is increased modestly). Similarly, the subdued pace of building activity evident in recent years and the shortage of properties on the market are likely to provide ongoing support for house prices.
“Overall, we expect house prices to be broadly flat in 2018, with perhaps a marginal gain of around 1%. Over the longer term, once the economy regains momentum, we would expect house prices to rise broadly in line with earnings (around 3%-4% 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 (in terms of its impacts on different sectors and the resulting geographic consequences). For example, if the financial sector is adversely affected, then the London market is likely to see more of an impact, while if manufacturing firms are disadvantaged, other parts of the country may be more negatively affected, even though valuation metrics appear less stretched.”
Notes to Editors
* This is based on data between January and November 2017.