MortgagesAug 4 2015

House price growth close to pace of earnings growth

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House price growth close to pace of earnings growth

The annual pace of house price growth edged up to 3.5 per cent in July from 3.3 per cent in June, Nationwide has reported, marking a “stabilising” house price growth.

Its monthly house price index, published today (4 August), revealed that the average UK house price was £195,621 last month, increasing by a monthly 0.4 per cent.

Robert Gardner, Nationwide’s chief economist, said after moderating over the last 12 months, there are tentative signs that annual house price growth may be stabilising close to the pace of earnings growth, which has historically been around 4 per cent.

Mr Gardner said this would bode well for a sustainable increase in housing market activity, though whether this will be maintained will depend on whether building activity can keep pace with increasing demand.

He said: “The outlook on the demand side remains encouraging. Employment growth has remained relatively robust in recent quarters, and, after a prolonged period of subdued growth, wage growth is also edging up.

“With consumer confidence buoyant and mortgage rates still close to all-time lows, demand for housing is likely to firm up in the quarters ahead.”

Nationwide also reported stamp duty changes have reduced “bunching” at key price points.

In the Autumn Statement last year there was a shift to purchasers paying the marginal tax rate on the relevant elements of the purchase price as the old ‘slab structure’ was abolished.

Even though the change to stamp duty only came into effect six months ago, Mr Gardner said the impact on the pattern of transactions is already evident, with much less bunching of transactions around the £125,000, £500,000 and in particular the £250,000 price points.

He said: “The benefits are greatest in the south of England where average house prices are higher.

“We estimate that around 85 per cent of transactions in London, the south west and south east have benefited from the changes, compared with around 55 per cent in the north, Yorkshire and Humberside, and the north west of England.

“However, we estimate that around 5,000 (2 per cent) of purchasers paid more (two thirds of whom were in London), with an average of £28,000 more tax being paid compared with the old system.”

Jonathan Hopper, managing director of the buying agents Garrington Property Finders, said with nearly half of all the stamp duty paid in England and Wales collected in London, the end of the slab structure was having a substantial chilling effect on the capital’s prime property market.

Guy Meacock, head of the London office of buying agency Prime Purchase, added: “There has been a catalogue of issues affecting the housing market - the Autumn Statement last December with the shock stamp duty overhaul, then the election and the threat of a mansion tax, and we have felt that the market is unlikely to completely wash through and absorb all that has happened until the Autumn at the earliest.”

emma.hughes@ft.com