Should we really believe that house prices rose by 0.9 per cent in September, as claimed by the latest release from the Nationwide House Price Index? The unexpected rise moderates the annual fall in house prices from 5.3 per cent in August to 3.3 per cent in September. There is a health warning on the Nationwide’s figures – and one which also applies to the monthly Halifax figures. Both these indices are derived from data on mortgage approvals for their own customers. When the market slows and there are fewer sales, it means there is less data on which to base the monthly figures, which inevitably makes them less reliable. Indices such as these were only originally meant to be read on a quarterly basis. For a fuller picture, we should be looking at the Office of National Statistics house price index, which is based on every property sale across the United Kingdom – although because it is based on completed sales rather than mortgage approvals it is always lagging by a couple of months.
Nevertheless, the Nationwide index would not be able to cover up a housing crash if that was what was happening – and clearly, it is not. A substantial rise in interest rates has reduced the number of people moving home but it has not, so far, led to a substantial fall in prices. As Nationwide explains this morning: there are very few forced sales. Homeowners who might otherwise be thinking of selling are simply not putting their homes on the market. This is leading to a paucity of supply, helping to keep prices from sliding in spite of fewer people buying homes.
Why are there so few forced sales in spite of sharply higher mortgage costs? Compared with previous housing slumps, there are fewer buyers with mortgages now – remarkably, over half of all homes are owned without a mortgage. Of those homeowners who do have a mortgage, many will be on fixed rates which were set some time ago. The effect of higher rates has yet to hit them.
But what of all the buy-to-let landlords who are supposed to be selling in droves as a result of rising rates and increasingly hostile legislation? There are plenty of surveys that claim that a large number of landlords are about to sell out – one in four are planning to sell a property over the next few months, according to the website Simply Business. But for those landlords who are not overborrowed, there is a good incentive to remain in the market: rents are rising strongly – up by 5.7 per cent in the year to September according to the ONS.
The housing market is being held aloft, as ever, by a fundamental shortage of housing. The size of the housing stock simply is not increasing in line with the demand for housing. The population has risen by an average of 370,000 a year over the past decade – thanks largely to immigration. Yet we are building fewer than 200,000 homes a year. Increasing demand for second homes and a shift towards smaller households as the population ages and birthrate falls, completes the picture. The inflationary effect of a shortage of homes continues to prevent a collapse in the housing market.
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