Interest Rates Remain the Same – But a Future Increase is Coming

Darren Pescod, CEO of The Mortgage Broker LTD, offers his advice on a number of common questions and situations his clients face.

A: We recently discussed and written on the topic that house prices could not keep going up. Now, we have further evidence that price growth is indeed easing. Recent figures from the Halifax have revealed a drop of 0.2% in property prices between May and July this year, compared with the previous quarter. This marks the fourth fall in a row – this first time that has occurred since 2012.

The figures come from the latest Halifax House Price Index, which makes interesting reading. House prices were seen to rise by 2.6% in June this year, and in July, this fell to 2.1%. To give some clarity, house prices were rising by 8.4% annually last year, just after the vote to leave the European Union took place. This represents a significant drop over the past 12 months.

Now don’t get me wrong, this isn’t a bad thing. Property prices levelling out, cooling off or even decreasing in a measured way are good for all in my opinion as it stops a bubble forming – And bubbles tend to op as they get bigger.

So, the overall picture in the last year has been a series of falls in the annual percentage change in house prices. The monthly change has been more volatile, as would be expected, while the quarterly-on-quarterly change has been broadly flat since around February this year.

Housing demand is weaker – and there are several reasons why

Wages have been largely stagnant for some time now, while employment is higher than in the previous three-month period, this has had no effect on earnings. Many people are reining in their spending, and finding it more challenging to save money towards a deposit on a property. Suffice to say, many people have put off making big decisions, and this has influenced the housing market too. (The increase in stamp duty doesn’t help either)

Although annual prices are up by 2.1%, and the month-on-month change is up by 0.4%, it seems likely we will see further easing of house prices in the coming months.

Wage growth remains suppressed, while consumer prices have risen. This has created a squeeze on household income, thus making it harder for people to find any surplus cash to put towards a possible house purchase/deposit. While low interest rates have led to great mortgage deals, there is some uncertainty over how long this will last, too. Perhaps some are watching and waiting?

Sales volume also down

Home sales were also noted to be declining. Before May, we had seen five months of sales of 100,000 or above. However, between May and June, the figure dropped to 96,910 sales, or 3%. Mortgage approvals were also lower, and there were fewer homes put up for sale, too. In fact, June marked the 16th month in a row where there was a drop in homes made available for sale.

So, some notable figures to look at and consider, but none of them make you want to jump up with joy and start forecasting / spending the growth in your equity that has happened all too frequently in the past. The housing market is likely to remain suppressed for some time to come. Although prices are still going up, the pace has slowed markedly, and we expect this to continue. It remains to be seen what the rest of 2017 has in store for the housing market.

Darren Pescod