House price growth slows to 2.2% in February: Nationwide

House prices fell by 0.3% over the month, after taking account of seasonal factors.

Robert Gardner, Nationwide's Chief Economist, commented: “After picking up unexpectedly in January, UK house price growth fell back in February, to 2.2% from 3.2% the previous month.

“Month-to-month changes can be volatile, but the slowdown is consistent with signs of softening in the household sector in recent months. Retail sales were relatively soft over the Christmas period and at the start of the new year, as were key measures of consumer confidence, as the squeeze on household incomes continued to take its toll.

“Similarly, mortgage approvals declined to their weakest level for three years in December, at just 61,000. Activity around the year end can often be volatile, but the weak reading comes off the back of subdued activity in October and November (approvals were around 65,000 per month compared to an average of 67,000 over the previous 12 months). Surveyors report that new buyer enquiries have remained soft in recent months.

“How the housing market performs in the year ahead will be determined in large part by developments in the wider economy and the path of interest rates. Brexit developments will remain a key factor, though these remain hard to foresee. We continue to expect the UK economy to grow at modest pace, with annual growth of 1% to 1.5% in 2018 and 2019. Subdued economic activity and the ongoing squeeze on household budgets is likely to exert a modest drag on housing market activity and house price growth.

“Nevertheless, housing market activity is anticipated to slow only modestly, since unemployment and mortgage interest rates are expected to remain low by historic standards. Similarly, the lack of properties on the market is likely to provide ongoing support for house prices. Overall, we expect house prices to be broadly flat, with a marginal gain of around 1% over the course of 2018."

Jonathan Samuels, CEO of Octane Capital, said: "With the ongoing financial squeeze on households, you sense the house price slowdown has now begun in earnest. High living costs, low wage growth, potential rate rises and a lethargic economy in the shadow of Brexit: for consumers, the bad news is in stereo mode.
 
"While weak supply and very low borrowing costs will prevent a collapse in prices, it's hard to see 2018 delivering anything other than very low single digit growth. February could go down as the month the big freeze on prices took hold.
 
"It's a freeze that may last until inflation comes down and there is significantly more clarity on the direction of the economy. For many people, the reasons to buy are being firmly outweighed by the reasons not to buy."

Jeremy Leaf, north London estate agent and former RICS residential chairman, added: "As one of the most closely-watched indicators of property market strength due to its longevity and accuracy, Nationwide’s figures may cause concern. At this time of the year we would have expected an increase, not a fall, in house price growth although of course these figures are in contrast to the previous month’s findings.

"However, it goes to show the limitations of a national snapshot of the market. While Nationwide reports a lack of supply, on the ground, we are finding more balance between supply and demand in our part of London as buyers, spoilt for more choice, hesitate before making commitments and identifying whether they are dealing with serious sellers."

Lucy Pendleton, founder and director of James Pendleton, commented: “Cancel that street party, it was just a blip after all. Last month’s optimism has evaporated faster than a snowman on the Equator. The January surge looked just as out of place too but Nationwide had already issued its own spoiler alert for this one.

“The firm warned the housing market was slowing earlier this month based on a huge 43 per cent drop in lending at the end of last year.

“If they are right, expect a slow rise, slight fizzle, a gentle landing and no major pop as we move into the second half of the year. House price growth will have to tend to  zero at some point if the market is to remain as flat as broadly expected in 2018.

“The most likely reason for January’s surprising boost is interest rate anxiety providing people with a reason to get on with their house purchase, pitting them against similarly motivated buyers in key areas. Though borrowing is still relatively cheap, it has been playing on people’s minds.”