Housing shortage drives up property prices

Annual house price growth has edged up to 2.6%, the latest house price index shows.

There is growing uncertainty around Brexit, while stamp duty and mortgage interest deductibility continues to have a negative impact on some sections of the housing market, and yet house prices continue to rise, according to Halifax.

The latest house price index from the mortgage lender shows that property prices rose in August at the fastest pace this year.

Home prices increased 1.1% from July, the biggest one-month rise since December and follows on from July’s 0.7% rise.

Annual house price growth has now picked up to 2.6% from 2.1% in July, Halifax’s data shows.

So what is fuelling growth in house prices?

Well, recent figures for mortgage approvals suggest that demand from buyers is improving, possibly on the back of low unemployment levels and record-low borrowing rates. But ultimately it is a chronic shortage of properties that continues to drive house prices upwards across Britain.

Constrained supply is likely to continue to provide support for house prices and, as a result, Property Price Advice forecast that home prices will rise by just below 3% this year.

However, it is worth pointing out that while the lack of homes for sale is placing upward pressure on property values, falling wage growth, when adjusted for inflation, is limiting the affordability of homes for some buyers, especially at the top end of the market, where buyers are still pushing back against higher transactions costs.

Reflecting on the latest house price data, Alastair McKee, managing director of the UK-wide independent mortgage broker, One 77 Mortgages, said: “First time buyers are proving to be the ballast of the property market.

“The Help to Buy initiative, coupled with the sheer competitiveness of the mortgage rates available and softer house prices, have opened a window of opportunity for many first time buyers.

“First-time buyers have made up for the lack of demand from landlords, and then some.

“Many people also want to get onto the property market, and lock into low fixed mortgages rates, before interest rates potentially start to rise.

“There’s a sense that the clock is ticking on rates and that is certainly a factor in the steady number of transactions.

“The toxic combination of high inflation and low wage growth is a key threat to the property market, and could see confidence unravel if it gets out of hand.

“But if the jobs market remains strong and inflation doesn’t rise far beyond its current level, there is no reason to think the market couldn’t continue along its current path for some time yet.”