LSL Property Services : Feb 17 House Price Index

Under embargo until 00:01 Monday 13th March 2017 February2017‌

• Prices surge 0.6% in February yet annual rate of growth falls to 2.4%
• Merseyside and Birmingham currently experiencing peak prices - up 5% and 6.2% respectively
• East of England is top performing region in terms of prices, up 5.9%

House prices grew at their fastest pace for 12 months in February, with average prices increasing 0.6%, double the rate in January. Strong performance in the East of England, new peak prices in Merseyside and Birmingham, and a return of growth in high value London property pushed average prices up to £297,832.

Despite this boost, annual house price inflation continued to fall for the twelfth consecutive month, dropping to 2.4%, the lowest annual rate since 2013. Estimated transactions in England and Wales in February, at 62,000, are also down 0.4% on January, but year-to-date remains higher than in 2015 and 2013.

"The good news too is that the number of first time buyers grew last year and house building was up - although home ownership is now at its lowest level in over three decades."

A strong start to the year for house prices isn't yet reflected in annual figures, which suffer from comparison to price spikes ahead of the last April's stamp duty hike. When these drop out of the calculation in a couple of months, though, we hope to see the more positive trend.

As the recent English Housing Survey shows, the market is supported by increasing numbers of first time buyers and rising transactions in the last year. The increasing contribution of a strong North Western market centred on Manchester, meanwhile, gives hope for more balanced, if modest, price growth going forward.

Reversing the story of the last few months, the 11 most expensive of London's 33 boroughs registered an average increase of 0.8% in prices over January (double the average for London as a whole), rising by £7,473.

By contrast, inflation in the cheapest third of boroughs, which drove growth for much of last year, was subdued. Only Havering (1.7%) and the cheapest borough Barking and Dagenham (up 1.1%), recorded growth above 1%. The latter has still posted double- digit annual growth (11.8%), though, as have Waltham Forest (10.1%) and Redbridge (10.3%).

The Greater London market still faces challenges, and from January 2016 to January 2017 average prices are up only 2.1% - the lowest rise in almost five years. Every borough has also seen a reduction in transactions for the three months to the end of January, compared to a year before, and London has seen the largest drop in transactions in the country (down 22%).

Despite a slow down, with prices up just 0.1% over the month, the East of England continues to top the table for annual growth, up 5.9%. The London commuter hotspots of Luton (growing 10.4% in the last year) and Essex (6%) both set new peak prices in the month.

In fact, with the exception of London, Southern regions are once again driving price inflation in England and Wales. The South East (up 0.6% monthly and 5.2% annually) and the South West (0.6% and 4.7%) are both closing the gap on the East.

House price index: historical data

It's not a simple North South divide, however. The North West, where prices grew 4.1% annually, is an increasingly important part of the market. Growth in property sales in Greater Manchester over the three years to the end of 2016 against the three before, (36%) is only marginally above the average for the region as a whole, but six times the sales growth in Greater London. Average prices, meanwhile, are up 7.2% annually.

It's not just Manchester contributing to the emergence of a Northern Powerhouse, either. Merseyside set a new peak price in January, with average prices up 0.5%. Heavy demand for apartments in Liverpool from both young professionals and buy to let investors renting to students has seen prices rise in Merseyside by 5% in the last year.

Among the other large cities, only Birmingham in the West Midlands set a new peak in the month. Ongoing regeneration of the city centre, good connections by rail and road, and expansion of a number of large employers is giving the city renewed confidence. Prices in the area were up 0.4% monthly and 6.2% on the year.

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

Table 1. Average House Prices in England & Wales for the period February 2016 - February 2017 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

The annual rate of house price inflation has fallen for the twelfth month in succession and now stands at just 2.4%. This is the lowest rate it has been since June 2013, almost four years ago, with average prices over the year rising by approximately £7,000 (6,933). However, despite this continued fall in the rate of annual price change, the monthly rate showed an increase of 0.6% over January, a gain of almost £1,900. This monthly rate is the highest recorded since February 2016.

Average House Prices in England & Wales (Not smoothed)

November 2015 - February 2017

£300,000

£295,000

£290,000

£285,000

£280,000

£275,000

E & W Trend

Figure 1. The average house price in England & Wales, November 2015 - February 2017

Source LSL Acadata HPI. The figures are mix and seasonally adjusted link to source Excel

So how can the data show low annual, but high monthly, changes in house prices at the same time? The answer is that the annual figures are being compared to the exceptional period in 2016, when prices were rising sharply in advance of the introduction of the 3% surcharge in stamp duty on second homes and buy-to-let properties. Figure 1 tracks the movement in house prices over the last 16 months, on an unsmoothed basis. The graph demonstrates the relatively steep increase in prices that took place in the three months prior to the introduction of the 3% surcharge in stamp duty on second homes. It also shows the equally steep fall in prices that occurred in April 2016, being the first month in which the new tax applied. From May 2016 onward there has been a more gentle increase in house prices, despite the Brexit referendum in June 2016. We will need to wait until April 2017 before the changes associated with the introduction of the stamp duty surcharge drop out of the annual statistics, and the rate of annual house price growth better reflects the underlying trends in house prices that currently appear to be prevalent.

The Housing Market

The Housing White Paper was duly released on 7th February after much trailing in the press. In the event, there were few surprises, along with some criticism that it did not bring the revolution many had hoped for. Rightly, the White Paper covered a wide spectrum of issues including supply measures, planning reform and market regulation. It was also accompanied by a number of consultation papers which added more substance, for example on starter homes, where it stepped back from a compulsory starter homes requirement to be imposed on local authorities. However, it was surprisingly tentative for instance when talking about the need for housebuilders to up their game and to deliver more homes by making better use of existing planning permissions - but not immediately putting in place any mechanisms to enforce this. Similarly, while it highlighted the need to help older home owners downsize, the proposals were for further discussion around this, rather than any concrete proposals. Certainly, the White Paper was strong on sentiments that most expert commentators would agree with, for example the need for a balanced policy to support both ownership and renting, as well as the need to increase housing supply. However, it was generally seen as disappointing in terms of new "concrete" policy directions and the commitment of new resources to tackle what the government itself describes as a "broken housing market". Much turns now on the consultations which flow from it (and the firm policy which emerges) and on the forthcoming Budget.

The latest results from the Department for Communities and Local Government's English Housing Survey published on the 2nd of March highlight the scale of the housing challenge faced by the government. The newspaper headlines on a further drop in home ownership to 62.9% - the lowest level since 1985, some 32 years ago - would not have made happy reading, and not least because the government had previously made much of the stabilisation of the position (though it is worth stressing that DCLG itself reports the level as unchanged at 63%). A further 250,000 households joined the private rented sector in 2015/16, bringing the increase in renters in the private sector over the last ten

The Acadata commentary by Peter Williams and John Tindale

years up by almost 2 million households (a 77% increase) while home ownership dropped by 461,000 households. The number of households with a mortgage is down by 1.7 million over the last ten years.

More positively, the number of first time buyers was up (645,000), and housebuilding output as measured by net new additions (new supply minus demolitions plus conversions and changes of use) was up. Transactions as measured by HMRC edged up at over 1.2 million for the UK in 2016, and the post-Brexit vote outlook for the economy has strengthened. Thus, there is some basis for optimism and the challenge for the government is to build on that. The forthcoming 8th March Budget provides a key opportunity. However, as the latest UK Housing Review 2017 will show there is still much to be done! Continued efforts are needed to stimulate turnover in the existing market alongside the focus on new build. Ultimately, transactions are a key metric on the health of the housing system.

Housing Transactions

The number of housing transactions in February 2017 in England & Wales is estimated at 62,000. This is 0.4% lower than January's total, and goes against the seasonal trend of an increase of 3.2% for this time of year. However, Figure 2 below shows that sales volumes have been higher in the first two months of 2017 than in both 2015 and 2013.

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 - 2017

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

2013

2014

2015

2016

2017

Figure 2. Number of properties sold per month in England & Wales, January 2013 - February 2017

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

Figure 2 also captures the dramatic surge in transaction levels that took place in March 2016, ahead of the introduction of the 3% surcharge in stamp duty. Subject to the forthcoming Budget, we do not anticipate a similar surge occurring in March 2017, so expect that sales volumes will be broadly similar to the levels achieved in 2014, with a gentle uplift in transactions taking place over the next six months of the year.

Table 2. The number of transactions recorded at Land Registry (as at 28/02/2017) for the period November 2016 - January 2017, compared to the same period one year earlier link to source Excel