02 July 2018

Annual house price growth slows to a five-year low in June

  • UK annual house price softened to 2%

  • Prices up 0.5% during the month, after taking account of seasonal factors

  • London was the weakest performing region in Q2, with prices down 1.9% year-on-year

Annual house price growth fell to its slowest pace for five years in June. However, at 2% this was only modestly below the 2.4% recorded the previous month.

Indeed, annual house price growth has been confined to a fairly narrow range of c2-3% over the past 12 months, suggesting little change in the balance between demand and supply in the market over that period.

There are few signs of an imminent change. Surveyors continue to report subdued levels of new buyer enquiries, while the supply of properties on the market remains more of a trickle than a torrent.

Looking further ahead, much will depend on how broader economic conditions evolve, especially in the labour market, but also with respect to interest rates.

Subdued economic activity and ongoing pressure on household budgets is likely to continue to exert a modest drag on housing market activity and house price growth this year, though borrowing costs are likely to remain low.

Overall, we continue to expect house prices to rise by around 1% over the course of 2018.

Further modest house price fall in London

Most regions recorded a slowing in their annual rate of house price growth in Q2. Once again, London was the only region to see a decline, having seen modest year-on-year price falls in each of the last four quarters. Prices in the capital were down 1.9% year-on-year in Q2. But despite the recent underperformance, prices in the capital are still more than 50% above their 2007 peak, while prices in the UK overall are only 15% higher (see chart below).

Regional house prices relative to 2007 peak

The East Midlands was the strongest performing region in England, and also the UK, with prices up 4.4% year-on-year. Scotland was the only region to see a notable pickup in annual price growth this quarter – to 3.1%. Wales saw a softening in price growth to 4%, though it was the best performing home nation.

Northern Ireland saw annual price growth of 2.1%, similar to the UK average, while England saw the weakest growth, with prices up 1.3% year-on-year.

Annual house price growth for nations graph

Most regions saw slowing in house price growth

Most regions saw a slowing in the annual rate of house price growth in the second quarter. Indeed, the only region to see a notable pickup was Scotland, where price growth accelerated to 3.1%.

Northern Ireland recorded annual price growth of 2.1%, similar to the UK average, after posting an unusually strong growth rate in the first quarter (7.9%). Wales also saw a softening in price growth to 4% (from 6.1% in Q1).

The East Midlands was the region that saw the strongest pace of growth in Q2, with prices up 4.4% year-on-year, just nudging ahead of the West Midlands at 4.3%.

Meanwhile, London recorded a further modest decline, with average house prices down 1.9% compared with the same period a year ago.

Annual house price growth for nations graph

England: home ownership rates have declined

Overall, England saw a 0.4% quarter-on-quarter fall in Q2, although average prices were still up 1.3% compared with a year ago. For the fifth successive quarter, price growth in Northern England exceeded that in Southern England, though most areas saw a slowing in annual price growth. Northern England saw a 3.3% year-on-year increase, while in the South prices were up just 0.5%.

North / South annual house price growth

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About the author

Robert Gardner

Robert Gardner is Nationwide’s Chief Economist, leading a team which provides economic analysis and advice, focused on developments in the UK economy, with particular emphasis on the housing market and house prices.

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