UK house prices edge up by 0.6% in February
The price of a typical UK home edged up by 0.6% in February, taking the year on year rate of house price growth up to 0.9% from 0.6% in January, according to the latest Nationwide House Price Index.
Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said: “Evidence that house prices picked up a little in February follows a series of data releases suggesting that economic conditions may not be quite as weak as feared after the UK economy contracted in thefinal quarter of 2011. Surveys of activity in the manufacturing and service sectors point to a rebound in January, while consumer confidence and retail spending were both stronger than expected during the month.
“Measures of activity in the housing market have also picked up, with the number of housing transactions rising by 23% y/y in January and the number of UK mortgage approvals – a leading indicator of sales – up 36%.
“However, it remains to be seen whether this trend will be sustained. Given the still challenging economic backdrop this increase in housing market activity may be the result of a temporary rise in first time buyers entering the market to take advantage of the stamp duty holiday before it expires in March. If so, this may continue to support activity and prices in the near term before cooling over summer.”
UK homeownership rate continues to fall
“Though often characterised as a nation of homeowners, the UK does not stand out as having a particularly high rate of home ownership by international standards
“However, the rate of home ownership has declined in recent years after rising almost continuously over the course of the twentieth century.
“The recent decline in the home ownership rate is due to a combination of factors. Weak labour market conditions and the uncertain economic outlook have depressed the demand for homes, especially for first time buyers, as unemployment rates amongst younger people have increased further and real earnings have fallen more sharply than other segments of the labour market.
“More fundamentally, residential property remains expensive relative to incomes, in part because housing is in relatively short supply. The pace of house building, especially in England, has been running well below the rate of household formation – a trend which is set to accelerate if official population projections come to pass.”
Strong growth in the private rental sector
“The flip side of the decline in home ownership rates has been a rise in the proportion of people renting, especially in the private rental sector. Indeed, the share of people renting has increased to 34%, the highest proportion since 1988. The share of social renters has remained fairly stable in recent years at 17.5%, while the proportion of private renters has increased to 16.5% the highest level since the 1970s.
“The increase in the demand for rental property has also put upward pressure on rents in recent years. In the decade before the financial crisis rental growth persistently lagged behind earnings growth, but this pattern has now reversed.
“Despite the increase in the proportion of the population renting a home in recent years, the aspiration to eventually become a homeowner remains undiminished. The most recent English Housing survey suggests that 23% of people in social housing and 59% of those in the private rental sector expect to be able to buy their own home in future.
“However, the same survey found that, on average, people expect that this will take longer. Just 22% of private renters expect to take their first steps into the housing market within two years, down from 29% in 2008. Conversely, 47% expected it to take at least five years, up from 40% believing it would take this long in 2008.”