House price growth in the UK picked up at a faster-than-expected rate in February, according to the latest index from the Nationwide Building Society.Average prices accelerated by 0.6 per cent over the month, representing a year-on-year rise of 4.5 per cent, compared to the annual rate of 4.3 per cent recorded in January. The increase brought the price of the average UK home to £205,846, according to Nationwide's method of calculation.

Shortage of properties

Robert Gardner, the society's chief economist, suggested that the UK market could see average price rises of about two per cent during 2017 with values being supported by low mortgage rates and the continuing shortage of properties.“Recent data suggests that the UK economy has continued to perform relatively strongly,” he said. “The outlook is uncertain, but we, along with most other forecasters, expect the UK economy to slow through 2017 as heightened uncertainty weighs on business investment and hiring.“Consumer spending, a key engine of growth in recent quarters, is also likely to be impacted by rising inflation in the months ahead as a result of the weaker pound.”Jonathan Hopper, managing director of Garrington Property Finders also commented, “The acute lack of supply is steadily nudging up average prices, but pragmatic vendors have long since grasped that this is anything but a seller’s market.....astute buyers are increasingly able to ask for, and secure, sizeable discounts.”

Cash transactions increasingly important

Mr Gardner added that cash transactions had become an increasingly important factor in the housing market, having grown from about a fifth of purchases in 2005-6 to more than a third now, rising to a new high in excess of 38 per cent in the first quarter of 2016.“The sharp increase in the share of cash purchases in 2007 and 2008 was a function of mortgage transactions declining sharply, rather than the amount of cash transactions increasing,” he said.“However, it is interesting that the share of cash transactions has not fallen back as the economy has recovered. Part of the reason is that mortgage market activity has increased only modestly and remains some way below the levels recorded in the mid-2000s.”

Ageing population spurs number of cash transactions

An ageing population of home owners, who were now downsizing after paying off their mortgages, was also spurring the number of cash transactions, Mr Gardner said, although the proportion in London was much lower than in the rest of the country because of the high prices in the capital.Jonathan Harris, director of mortgage broker Anderson Harris, said, “While the proportion of cash buyers may be higher than it was a decade ago, the vast majority of people still need a mortgage and are taking advantage of the fact that rates are so low. What's more, lenders seem keen to lend and that competition should lead to the continuation of cheap rates through the spring.”Alex Gosling, chief executive of online estate agent housesimple.com, said the housing market still needed to see a “confidence-boosting spring”.

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He added, “The first cut to mortgage tax relief is also just a couple of months away, and no-one really knows what impact that is going to have. The response to the second homes tax that came in last April was dramatic before and after the event, but we didn’t see investors completely desert the market as many people predicted. Investors quickly adapted to the changes and the same may well happen when the phasing out of mortgage tax relief on buy-to-lets begins.”Howard Archer, an economist at IHS Markit, said, “Housing market activity is likely to be limited in 2017 by softer consumer confidence and reduced willingness to engage in major transactions.”For related news and features, visit our Residential Property section.Access hundreds of global services and suppliers in our Online Directory  Get access to our free Global Mobility Toolkit  

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