UK housing breaks 15 month streak of price rises

After fifteen straight months of increases for U.K. housing, prices in October stayed flat, according to a report by U.K. building society Nationwide released Wednesday.

Annual prices also relented to 4.6 percent during the month from 5.3 percent in September, the report stated. While the indication of an average slowdown across the country comes as welcome news to many who feel they haven't sufficiently partaken in the stratospheric growth seen in house prices this century, the report was quick to point out that affordability remains a pressing issue, particularly in the capital.

Since the winding down of the financial crisis in 2009, house prices have been on an almost uninterrupted tear, with particularly strong acceleration seen since 2013.

Nationwide compares the 20 percent jump in prices during the last three years with the 6 percent lift in average wages, saying this has pushed the house price-to-earnings ratio to 6.0 times from 5.3 times in October 2013. The same ratio in London stood at 11.8 times as of the end of the third quarter, close to its record high of 11.9 times reached in the second quarter.

While the Bank of England's decision in the wake of the EU referendum to slash interest rates to a record low of 0.25 percent should have helped borrowers (all else equal), Nationwide points out that due to inflated house prices, mortgage payments as a share of take home pay have moved above even their 2007 peak in London. For the country as a whole, it remains aligned with the long-term average.

This latter data refers to first-time buyers, an area of the market concentrated at the lower end of the price spectrum and often helped by government policies such as the "help-to-buy scheme" which requires only a 5 percent deposit that is boosted by a substantial government loan.

Despite rising debate and initiatives in recent years concerning the need to develop the quality and quantity of the country's rental stock, many still have an overwhelming to step onto the property ladder, which is helping to underpin demand at the £600,000 ($736,000) and below price point (the maximum value of a property eligible for the help-to-buy schemes).

This lower end of the market is therefore functioning more normally than the more expensive segment which has been more impacted by issues including a series of punitive house purchase levies and other tax amendments, as well as concerns over Brexit given its higher concentration of foreign ownership.

These pressures have contributed to a fall off in the number of transactions this year, with the number of sales U.K.-wide trailing 17 percent below their long-term average, according to Jefferies.

Contractors install siding on a house under construction in the Norton Commons subdivision of Louisville, Kentucky.
Luke Sharrett | Bloomberg | Getty Images
Contractors install siding on a house under construction in the Norton Commons subdivision of Louisville, Kentucky.

Housebuilders which cater towards this lower end marketplace have by and large shown remarkable resilience in trading since the EU referendum which caused a dramatic sell-off in their shares as fears over their outlook soared.

The U.K.'s second-largest housebuilder Persimmon reported robust third-quarter results Wednesday, with sales up 19 percent since July and guidance towards a higher operating margin for the second half of the year.

CEO Jeff Fairburn told Wednesday he blamed policies rather than housebuilders' actions for the continued squeeze on housing availability and affordability, saying, "the industry has responded very well to the demand that we're seeing. As an industry since 2012, the numbers are up by 50 percent so for the type of product we're manufacturing that's pretty good."

"The planning system still needs to produce more sites in the right locations where people want to buy," he added.

Yet the uncertainty paralyzing the broader housing market, given both political and economic question marks over the direction in which the new government will take the country as it negotiates its exit from the European Union, is also rattling the housebuilders.

While Fairburn says prices are currently holding up well, he is attuned to the risks surrounding continued weakened consumer and house buyer sentiment. In light of this, he says the company plans to rein in its land acquisition plans and boost its cash balance.

"As we move into next year I think demand will continue but we just need to be aware of confidence in the marketplace … As I say we are a little more cautious," he added.

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