House prices are falling at their fastest rate since 2012 as people face ‘squeeze on real incomes’

A worker erects scaffolding outside a building being renovated in London, Britain, April 26, 2017.REUTERS/Toby Melville

LONDON — House prices in Britain recorded their second monthly decline in April, Nationwide said on Friday.

On a seasonally adjusted basis, prices declined by 0.4% in April according to Nationwide. It may not sound like a lot but Britain’s recent rampant property market means the drop represents the worst monthly decline since 2012.

Annual price growth is also weak. Average prices in April were 2.6% higher than the same month last year, the smallest annual increase since June 2013.

Robert Gardner, Nationwide’s Chief Economist, says in a statement: “In some respects, the softening in house price growth is surprising because the unemployment rate is near to a 40-year low, confidence is still relatively high and mortgage rates have fallen to new all-time lows in recent months.

“While monthly figures can be volatile, the recent softening in price growth may be a further indication that households are starting to react to the emerging squeeze on real incomes or to affordability pressures in key parts of the country.”

Britain is facing rising inflation due to the collapse in the pound following last year’s Brexit vote. Price inflation hit 2.3% in March and is forecast to peak at over 3% later this year. This is well above wage growth and means Brits are saving far less. The squeeze on incomes and savings appears to be taking some of the heat out of the property market.

Gardner says: “Various data suggest that the latest slowdown in house prices may be part of a broader trend. Retail sales growth has slowed markedly in recent months, from a 14-year high of 7.3% in October, to 3.7% in February and 1.7% in March.

“Household budgets are coming under pressure, as wage growth has moderated and inflation has accelerated. The household saving ratio, which measures how much income goes unspent each quarter, fell to an all-time low of 3.3% in Q4 on data extending back to 1963.”

Gardner also flags the fact that recent rampant price growth in Britain’s property market has made houses unaffordable to most in some parts of the country.

“The typical house price is currently 6.1 times average earnings, well above the long-run average of 4.3 times earnings, and close to the all-time high of 6.4 times recorded in 2007,” he says.

The average house price in Britain now stands at £207,699, according to Nationwide. That is still well above its pre-financial crisis peak:

Nationwide

While price growth is slipping, mortgage approvals remain steady at around 68,000 in April. Gardner says: “It is too early to conclude whether the slowdown in house price growth is merely a blip, a reflection of the impact of the squeeze on household budgets, or is due to mounting affordability pressures in key areas of the country.”

Jonathan Samuels, CEO of specialist property lender Octane Capital, says in an emailed statement: “The General Election has the potential to make the market even more lethargic in the next month or two but there’s a chance of an uplift in transactions and interest, on behalf of buyers and sellers alike, once the result is in.

“Even then it’s likely activity levels will remain conservative until there is greater clarity on the outcome of ongoing Brexit negotiations.”

However, a shortage of housing supply should support prices and Nationwide is forecasting 2% growth in house prices across 2017.