House prices remain stable but sale activity expected to slow
7th June 2016

UK house prices edged up 0.2% in May and, as a result, the annual rate of house price growth was little changed at 4.7%, compared with 4.9% in April, according to figures from Nationwide.

Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said:
“The annual pace of house price growth remains in the fairly narrow range between 3% and 5% that has been prevailing for much of the past twelve months.

“In the near term, it’s going to be difficult to gauge the underlying strength of activity in the housing market due to the volatility generated by the stamp duty changes which took effect from 1 April. Indeed, the number of residential property transactions surged to an all-time high in March, some c11% higher than the pre-crisis peak as buyers of second homes sought to avoid the additional tax liabilities.

“While cash purchases accounted for a significant proportion of the increase in activity it is not possible to determine whether or not these were purchased by landlords. Mortgage data suggests that, while Buy to Let (BTL) purchases were a major driver of the increase, the purchase of second homes also accounted for a substantial proportion. The number of home mover mortgages, which is where second home purchases with a mortgage would show up, increased sharply in March.

“House purchase activity is likely to fall in the months ahead given the number of purchasers that brought forward transactions. The recovery thereafter may also be fairly gradual, especially in the BTL sector, where other policy changes, such as the reduction in tax relief for landlords from 2017, are likely to exert an ongoing drag.

“Nevertheless, healthy labour market conditions and low borrowing costs are expected to underpin a steady increase in housing market activity once stamp duty related volatility has passed, providing the economic recovery remains on track.

“However, it is possible that the recent pattern of strong employment growth, rising real earnings, low borrowing costs and constrained supply will tilt the demand/supply balance in favour of sellers and exert upward pressure on price growth once again in the quarters ahead. According to RICS, the number of properties on estate agents’ books was already close to all-time lows on data extending back to the late 1970s.”