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House price confidence rebounds in June

The latest House Price Sentiment Index (HPSI) from Knight Frank and IHS Markit has revealed that, across the UK, households perceived that the value of their home rose over the last month.

According to the analysis, a score of 50 equates to no change with any reading above 50 indicating rising prices, and any reading under 50 indicating falling prices. The higher the figure, the stronger the increase

Some 17% of the 1,500 households surveyed across the UK said that the value of their home had risen over the last month, while 8.9% said that prices had fallen. This resulted in an HPSI reading of 54.1.

July’s reading was the twelfth consecutive month that the index has been in positive territory, following the post-referendum low a year ago in July 2016. It also marks a reversal of three successive months in which household sentiment, while remaining positive, weakened.

However, the index remains well below its previous peak of 63.2 achieved in May 2014.

Any figure over 50 indicates that prices are rising, and the higher the figure, the stronger the increase. Any figure below 50 indicates that prices are falling.

Households in ten of the 11 regions covered by the index perceived that the value of their property rose over the past month, with households in the North West the exception.

Households in London and the East of England (57.7) reported the biggest rise over the course of the month, followed by these in the South East (56.9) and the South West (55.1).

Since the inception of the HPSI, the index has been a clear lead indicator for house price trends, moving ahead of mainstream house price indices. This confirms the advantage of an opinion‐based survey which provides a current view on household sentiment, rather than historic evidence from transactions or mortgage market evidence.

The future HPSI, which measures what households think will happen to the value of their property over the next year, rose slightly to 62.0 in July’s survey, up from 61.3 in June.

As with the current HPSI readings, there are quite large regional variations in the data.

Households in the London (68.7) are the most confident about future price rises, followed by those in the South East (67.2) and the West Midlands (64.8).

There was a big rise in sentiment among households in the South West (61.6 from 52.8) and in Scotland (62.1 from 53.8) in July compared with the previous month.

Looking at households by tenure, mortgage borrowers were the most confident that prices would rise (64.4), followed by those renting from a private landlord (62.8) and those who own their home outright (61.0).

Oliver Knight, an Associate in Knight Frank’s Residential Research team, said: “While UK house price sentiment ticked up slightly in July it remains subdued in comparison to longer term trends. Households still report that values are increasing, but at a more modest pace than before the EU Referendum, which remains consistent with wider housing market indicators.

Rising sentiment in July suggests that any uncertainty surrounding the recent General Election result, and the start of Brexit negotiations in June which could have weighed on pricing, has been offset by a lack of supply of housing for sale and the low interest rate, low mortgage rate environment which continues to underpin pricing across much of the UK.”

Tim Moore, senior economist at IHS Markit, said: “UK households continue to anticipate property price gains over the coming 12 months, especially those living in London and the South East. The latest survey signals a rebound in confidence for the first time in three months, but looking at the overall picture reveals that house price sentiment has shifted down a gear this summer.

Household expectations for property price rises have eased to levels last seen in mid-2013, against a backdrop of weak pay growth, affordability constraints and squeezed consumer budgets. There are also signs that Brexit-related uncertainty and the fiscal squeeze on buy-to-let continue to weigh on sentiment.

While households are expecting the soft patch to persist in the near-term, overall levels of confidence are slightly above the trend seen since the survey began in 2009.

The resilient picture relative to longer-term patterns is likely helped by the ultra-low mortgage rate environment, improved credit availability and an entrenched shortage of supply across large parts of the country.”

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