LSL Property Services : Dec 16 House Price Index

Under embargo until 00:01 Monday 16th January 2017 December2016‌

• Average prices up 0.4% in December to end just £47 shy of all-time high
• Hull is top-performing unitary authority with annual price growth at 16.2%
• The East is the top performing region, up 7.9%
• Hammersmith and Fulham sees largest fall

At the end of a year of upheaval and uncertainty, the market proved its resolution in December. Growth of 0.4% pushed the average price of a house in England and Wales up £1,139 to finish the year at £297,678.

Prices have now almost fully recovered from the peak they reached in March 2016 ahead of the 3% surcharge on stamp duty on second homes and buy-to-let properties which was introduced in April. Strong performance in cheaper properties across the country saw every region in England and Wales finish the year with positive house price inflation.

December saw some of the strongest monthly growth since the beginning of the year, however, annual growth slowed slightly to 3.1% in December from 3.5% in November.

The modest gain in average prices over the year also disguises both the volatility immediately before and after the introduction of the changes in stamp duty, and a massive variation in regional performance. Annual price growth has been as high as 16.2% in Hull while falls have been as deep as -11.5% in the London Borough of Hammersmith and Fulham.

The slowdown in transactions has been more consistent across the country, however. Since a strong start to the year, and a surge in March, sales have been lower each month than in either 2014 or 2015. Overall in 2016, they were down 3.9% on 2015 and for the last six months of the year fell 14.7% compared to 2015.

"As the lower transaction figures since April show, the market faces challenges ahead, but it enters 2017 a lot stronger than many would have expected."

"In its place, the South East and other areas with good value property continue to grow strongly, and even in London itself cheaper boroughs have seen strong increases. It will be interesting to see how far the balance in the property market continues to shift from London to its surrounding areas in the coming year."

In one respect at least London remains a microcosm of the country as a whole: relatively modest overall annual house price growth of 0.2% fails to reflect the dramatically different fortunes of its various areas.

The average price in London has fallen each month since March 2016, but this largely reflects a slowdown in prime property. As well as Hammersmith and Fulham at the top end, Kensington and Chelsea (the most expensive borough) is down 3.7%, Westminster is down 7.3%, and Camden down 5.3% annually.

Three of the cheapest five boroughs, by contrast, saw double-digit growth: Barking and Dagenham (with the cheapest average prices in London), up 12.1%; Bexley, up 11.8%; and Havering, up 10.2%. Waltham Forest with average prices still about £135,000 below the London average of £585,931 was another to see growth over 10%.

House price index: historical data

Of the 19 lowest priced boroughs as of last November, only two have seen price falls in the last 12 months: Hounslow, down 2.6%, and Greenwich, down 1.4%. Of the 14 highest priced last November, only three have escaped price drops.

For transactions, the story has been more consistent. All 33 London boroughs have seen a reduction over the three months from September to November 2016, compared to a year earlier. Again, though, cheaper areas have fared better, with the smallest reductions in sales in Bexley and Barking and Dagenham.

Overall London has trailed the other regions of England and Wales, with house price growth of 0.2%, well below even the North East, up 1.5% over the year, or Yorks & Humber, up 2%. The latter was boosted by a 16.2% increase in values in Hull, the best performing area after a massive 5.8% increase in November in the run up to its year as the UK City of Culture. Even Wales, which had more areas seeing price falls over the year than any other, was up 2.2% over the year, helped by 13.6% growth in Gwynedd and 10.3% in Blaenau Gwent.

Overall, only 19 (of 108 unitary authority areas) recorded falls over the year, with 82% seeing increases. After Hull, the best performing individual area was Rutland in the East Midlands, up 15.2%, albeit based on relatively few transactions.

The best performing region by a distance, however, was the East of England. There, four of its ten unitary authorities saw growth over 10%, including Thurrock, with the third highest growth in the country, up 13.8%, and Southend-on-Sea, where prices rose 13.6% (fourth equal with Gwynedd in the league table).

Elsewhere, the South East also performed well, with 5.2% growth bolstered by an 11.1% increase in Bracknell Forest and a 10.4% rise in Slough. That was despite Windsor and Maidenhead in the region seeing the biggest fall over the year - down 4.8%. Windsor and Maidenhead, it should be noted, is also the unitary authority with the highest average property price (at £534,224) outside Greater London.

While London prices cool, other large cities, including Birmingham, Greater Manchester and Merseyside are all currently experiencing new peak prices.

For a more detailed market analysis by Acadata, see page 3.

Table 1. Average House Prices in England & Wales for the period December 2015 - December 2016 link to source Excel

The Acadata commentary by Peter Williams and John Tindale

Peter Williams, Chairman of Acadata and John Tindale, Acadata housing analyst comment: House prices

Annual house price inflation has been falling in England and Wales for the last 9 months and December has proved no exception. The rate now stands at 3.1%, below the revised 3.5% recorded in November - and all the evidence suggests this trend will continue. On a monthly basis, average prices in England and Wales rose by £1,139, or by 0.4%, to an average of £297,678. This is just £47 short of the all-time high of £297,725 reached in March 2016, immediately prior to the introduction of the 3% surcharge on stamp duty on second homes and buy-to-let properties, which became active on 1st April.

Although this average 'national' figure has only fallen by such a small amount, in reality it conceals the considerable movement in prices that have been taking place across the country, ranging from an increase of 16.2% in the city of Kingston upon Hull, to a fall of 11.5% in the London Borough of Hammersmith and Fulham. We explore the detail of these and other price shifts in the remainder of this month's report.

Prices have been falling throughout much of the year - the annual rate of house price inflation has declined from 9.1% in March to 3.1% now, although this rate of decline is now slowing. Similarly, transaction numbers have fallen in the year when compared to 2015. Figure 1 below shows the level of monthly transactions over the last four years, 2013 - 2016.

Number of houses sold per month

130,000

120,000

110,000

100,000

90,000

80,000

70,000

60,000

50,000

40,000

Housing Transactions per Month 2013 - 2016

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2013

2014

2015

2016

Figure 1. Number of properties sold per month in England & Wales, January 2013 - December 2016.

Source Land Registry & Acadata estimates. The totals shown have not been seasonally adjusted. link to source Excel

Although the year started well with transaction levels higher than 2015, followed by the surge in sales in March 2016 immediately prior to the stamp duty change, in each of the months from April onwards, sales volumes have been lower than the equivalent months in 2014 and 2015. In 2016, sales for the year are 3.9% down on 2015 and 4.4% lower than 2014. However, if we take the last six months of each year, then the position is more stark, with sales down by 14.7% on 2015 and 10.6% on 2014. And for the three months September - November 2016 (the latest period for which we have detailed figures), sales volumes are down by 18.8% on 2015.

So why have sales volumes fallen so much during the second half of the year? In part, this will be due to the high number of sales that were pulled forward into March 2016 to avoid paying the additional 3% tax. There may also partly be a technical reason, since the Land Registry only record 'domestic sales' on its price-paid dataset - sales to companies are thereby excluded from the count and these have risen in number and significance. To mitigate some of the impact of recent tax changes, buy-to-let landlords have started to use specially-formed companies to purchase buy-to-let properties. And this will have had the effect of reducing the Land Registry transaction count. But in part it will also be because properties to purchase are currently in short supply. The RICS has reported that the average numbers of properties for sale per surveyor are close to an all-time low, and with prices easing and uncertainty widespread it is unsurprising sellers are holding back.

The Acadata commentary by Peter Williams and John Tindale

The Housing Market

On the basis of expectations for 2017 and later, 2016 will probably be the peak of the steady rise in transactions from the trough in 2009. The outturn for England & Wales for the year, based on Land Registry and ONS figures, is likely to be around 884,000 properties sold, up from around 625,000 sales in 2009. Looking ahead at 2017, market forecasters are suggesting transactions will fall to somewhere between 813,000 and 850,0001 sales in the year, and for that decline to continue into 2018. However, as experts in general and expert forecasters in particular would be quick to remind us, there is considerable uncertainty surrounding all numbers because of the uncharted nature of what happens next to the British economy. Although the market is certainly more positive about the future than it was 6 months ago, the fact is that there are still too many unknowns.

In terms of house prices and mortgage lending, expectations for the former are down but for the latter very marginally up. There are different views on prices for the country as a whole, ranging from a -1% fall to an increase of 2% and with very considerable regional variations. Mortgage lending by contrast is forecast by the Council of Mortgage Lenders to rise very modestly from £246 billion of gross mortgage lending (ie, without taking account of repayments) in 2016 to £248 billion in 2017, with house purchase activity falling back and remortgaging increasing - reflecting the widespread view that interest rates can now only rise over the medium term.

Although housing supply remains a top priority, and the government in England will set out its plans later this month, the fact is that the increase in supply that is slowly working through will do little to impact price trends - these are driven by the second-hand market. However, government is having an impact not least through its revised stamp duty regimes. Transacting property at the top of the market is now a very expensive activity, and this is reflected in a reduction in transactions as we show later. The buy-to-Let purchase market is expected to weaken somewhat in 2017, and of course that will help support the continued growth of first time buyers - a key priority. However, with faltering transactions more thought should be given to encouraging more existing owners to move and to adjust their housing requirements.

1 The equivalent HMRC transaction figures for the UK as a whole are an outturn of 1.25 million sales for 2016 and a forecast of between 1.15 - 1.20 million sales for 2017.