Property experts are divided on whether the 0.9% growth in house prices last month is a sign the market has bottomed out or is simply the calm before the storm, with average values being artificially supported by the Mortgage Charter.
House prices rose by 0.9% in October, according to the Nationwide, after taking account of seasonal effects, resulting in an improvement in the annual rate of house price growth to -3.3%, from -5.3% in September.
Commenting on the figures, Robert Gardner, Nationwide’s Chief Economist, said: “The uptick in house prices in October most likely reflects the fact that the supply of properties on the market is constrained. There is little sign of forced selling, which would exert downward pressure on prices, as labour market conditions are solid and mortgage arrears are at historically low levels.
According to Riz Malik, director at Southend-on-Sea-based R3 Mortgages: “The property market is being supported by the provisions in the Mortgage Charter primarily relating to repossessions. This means distressed sales are not hitting the market. When they do, it will be a different story. Don’t be duped into thinking we are through this mess. The financial pain has only just started with millions yet to come off ultra-low fixed rates.”
Imogen Sporle, head of property at Finanze, agreed with Malik: “These figures shouldn’t have us dancing around too soon. They’re a small snapshot from one lender, taken during the summer months when sales tend to be more buoyant. We’re seeing more down valuations, which will no doubt impact these figures going forward. The number of households struggling is on the rise and it remains to be seen how things look early next year. We hope the market is bottoming out but are cautioning our clients to take account of all risks before making offers.”
Katy Eatenton, mortgage and protection specialist at Lifetime Wealth Management, also warned people to not get too excited: “While this makes positive reading, it isn’t reflective of the real situation. As the Nationwide rightly points out, there isn’t an abundance of stock available so prices are remaining steady, for now at least. Mortgage rates are also coming down, which is encouraging more first-time buyers to enter the market, resulting in higher demand that is supporting prices. However, there are red flags ahead. Once mortgage arrears reach 12 months, we may see more properties coming on the market, resulting in potentially significantly lower prices. Also, Nationwide offers good first-time buyer products, which could mean they are seeing a different portion of the whole market than other lenders. Let’s not get too excited just yet.”
For John Choong, senior equity research analyst at Investing Reviews, October’s 0.9% increase could be a dead cat bounce: “The upbeat October house price data was due to a combination of factors that include seasonal buying patterns and mortgage arrears remaining at historically low levels, in part due to the Mortgage Charter. Equally, over 70% of mortgage debt resides in the top four income deciles of the UK population, allowing people to better shield themselves from the current rate environment. But despite that, this does have the feel of a dead cat bounce as a lot of people are still on ridiculously low mortgage rates. When that changes, the wheels could still come off the UK property market.”
But Ranald Mitchell, director at Norwich-based independent mortgage broker, Charwin Private Clients, was optimistic: “Buyers may be beginning to mobilise after a long, stagnant and uncertain period. This could be an indication that mortgage pricing is reaching a more palatable level and that those who are eager to move want to get on with it. If these are early indicators of a more positive market, all eyes will be on mortgage lenders and the continuation of the pricing war they have entered into.”
This optimism was shared by Anil Mistry, director at Leicester-based RNR Mortgage Solutions: “No surprises here with this news. We’ve seen an increase in enquiries lately, better than what we anticipated, especially in the last couple of months. It’s worth noting that a significant chunk of these enquiries are coming from first-time buyers. Even with the Bank of England holding its rates steady in the last meeting, buyers seem to be embracing the current economic climate and interest rates as they charge ahead with their home purchases. It appears that the property market could be making a quicker comeback than many people had dared to predict.”
Jamie Thompson, director at Manchester-based Jamie Thompson Mortgages, said prices were being supported by weak supply and strong demand, especially among first-time buyers: “First-time buyers are out in force and are having sales agreed quickly once they start looking. There are also fewer properties on the market than there were 18 months ago. Couple this with the fact that in the last 12 months we’ve had two sharp spikes in mortgage rates, which put a lot of buyers off at the time, especially first-time buyers. But they are still out there and now that rates are somewhat reasonable again, they’re out looking for properties with thousands of others who delayed buying by up to 12 months. With fewer properties on the market and demand among first-time buyers strong, a small increase in prices shouldn’t be as surprising as we all think.”
But Craig Fish, director at London-based mortgage broker, Lodestone Mortgages & Protection, said sellers should not think the balance of power is swinging back in their favour: “I firmly believe these figures are an anomaly, and let’s not forget this data is from only one of the UK’s lenders. It also only covers housing transactions by way of mortgage and not cash, and shows data from around 12 weeks ago, so July and August, which was a time when we were quite busy. For those who are buying right now, please tread with caution. And sellers should not for a second think it’s their market again.”
Despite October’s uptick, Graham Cox, founder of the Bristol-based broker, Self Employed Mortgage Hub, is still expecting values to drop noticeably in the months ahead: “A lot of people with larger homes and mortgages are downsizing at the moment, possibly supporting prices at the lower to mid-range, where most of the transactions are. And the Nationwide figures only report purchases with a mortgage, not cash buyers, where a lot of the discounting is happening. Make no mistake, this is the lull before the storm and I’ll be astonished if there aren’t significant house price falls reported over the next six months.”
