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House price growth is failing to keep up with inflation, says expert Kate Faulkner

Designs on Property tracks and summarises the monthly property indices. Kate Faulkner says, “Property has, in the past, been seen a ‘sure-fire’ earner with some people earning more in a year from their home than from their wages. Now it’s failing to keep up with inflation.”

Kate Faulkner

Stalling house price image


Rightmove: “Mid-country hot-spots enjoy mini-boom in annual price growth.”
naea | propertymark: “Summer slump as supply of houses available to buy dips.”
RICS: “Price growth grinds to a halt.”
Nationwide: “House price growth slows in August.” Halifax: “Annual house price growth picks up to 2.6 per cent.”
LSL Acadata HPI: “Housing transactions pause for summer holidays.”
Hometrack: “UK city house price inflation at 5.3 per cent, down from 7.4 per cent in July 2016.”


Average prices across the indices vary from mortgaged only prices from the Nationwide HPI (Aug 17) of £210,495, through to marketing prices (not necessarily sold) from Rightmove (Aug 17) of £313,613, a 49 per cent difference. Average sold prices from the UK HPI stand at £240,325 (June 17).


Kate Faulkner imageKate says: Despite the rather conflicting report headlines from Halifax’s cheerful “annual house price growth picks up to 2.6 per cent” through to RICS’s more pessimistic “price growth grinds to a halt”, most of the indices continue to be reporting a slowdown, but still some price growth. Halifax, probably due to low volumes, often differs to other indices so I tend to find their index less reliable, although their longer term research is always very useful. LSL Acadata HPI and Rightmove both point out though we are having ‘the usual’ summer dip. Rightmove analysis shows that since 2010, the last seven years, every year has seen a price fall over the summer of -1.2 per cent. However this year I think it is unlikely that the market is going to see its usual bounce back moving into the autumn.

Only three of our English regions are seeing house price growth keeping ahead of inflation.


Kate says: Each country within the UK now performs completely differently, rendering UK data analysis for buyers and sellers (and agents) utterly useless. Wales and Scotland have finally recovered their average house prices from 10 years ago and are seeing slow but solid growth year on year, around three per cent. Northern Ireland is seeing better year on year growth of 4.4 per cent, with prices being on average 43 per cent down versus 10 years ago on a nominal basis. However, taking account of inflation of 27 per cent since 2007, that means the average in cash terms would need to be £286,000 today – whereas it’s actually 55 per cent less… on average, of course. With some areas now up by over 90 per cent versus the pre credit crunch market height, it’s clear to see how ‘averages’ are just not good enough for those buying and selling.

RICS: “House prices remain quite firmly on an upward trend in some areas, led by Northern Ireland, the West Midlands and the South West. By way of contrast, prices continue to fall in London, with the pace of decline broadly matching that of the previous three months. At the same time, the price balance for the South East of England fell further into negative territory, posting the weakest reading for this part of the country since 2011.”

LSL Acadata HPI: “Every region in the UK still shows annual growth, however they all slowed in June. The biggest drops in annual growth were in Wales, down 1.5 per cent to just 0.2 per cent for the year, the West Midlands, down 1.3 per cent to 3.3 per cent, and Yorkshire & Humber and the South East, with annual growth rates falling 1.2 per cent in both to 1.5 per cent and 3.5 per cent, respectively. In the South West prices are up 4.2 per cent annually, the East Midlands registered an increase of 4.1 per cent and the East of England rose by 5.1 per cent.

The East of England continues to perform strongly, with all its unitary authority areas showing solid annual growth, led by Southend-on-Sea, up 10.2 per cent, and Luton and Bedfordshire (both up 8 per cent).

“Aside from Southend-on-Sea, four other areas recorded double digit growth in prices on an annual basis: Rutland in the East Midlands, with the highest annual increase (12.9 per cent), albeit on low transaction volumes; Poole (up 10.8 per cent) in the South West, which shows strong growth overall with Bournemouth, up nine per cent annually, also particularly strong; and Pembrokeshire (10.8 per cent) and Blaenau Gwent (10.7 per cent), both bucking the trend in Wales.”

Hometrack: “Birmingham is the fastest growing city (eight per cent, up from 6.8 per cent in July 2016). The rate of growth has been consistent over the last year and trending upwards on sustained demand, a lack of homes for sale and attractive affordability. Manchester (7.1 per cent) and Nottingham (6.9 per cent) are the second and third fastest growing cities.

“Aberdeen continues to register year on year price falls (-3.0 per cent). House prices in Aberdeen have been registering negative annual growth for exactly two years. Average house prices are 16 per cent lower since December 2014 as the fall in oil prices impacted the economy.

“The annual rate of growth in London has increased to 2.8 per cent marking an end to the steep slowdown over the last 18 months.”

Kate says: The data regionally is as disparate as the country data. Taking inflation over the last 10 years at 27 per cent, it’s quite clear that only three of our English regions and only seven of our 26 towns and cities are seeing house price growth keeping ahead of inflation.

That means of the 50 per cent plus who own their home outright, or who bought to let with cash, are likely to have seen a fall in property values in real terms over the last 10 years. Looking at the year on year and forecasted annual growth rates, although they are still on the up for most, they are not likely to keep up with a three per cent inflation average annual rate. Property has, in the past, been a ‘sure fire’ earner, allowing some people to earn more from their property in a year than their wages. However, now it appears property (on average) is failing to keep up with inflation which may mean investors and home owners think twice about relying on property for their pensions and income in the future.


Most commentary focuses on what is happening to property prices, but as anyone in the property industry knows, property prices are driven by what happens to supply and demand, which is why performance is so localised, pretty much to a property on a street.

LSL Acadata HPI: “We estimate the number of housing transactions in July 2017 in England & Wales at 70,000. This is down by nine per cent on June’s total, and goes against the typical seasonal increase of five per cent that we would expect in July (based on averages from the last 20 years).”

naea | propertymark: “The number of sales agreed per branch fell in July. In June, there were 11 sales agreed per branch, compared to just eight last month. Sales made to FTBs fell from 30 per cent in June to 23 per cent in July. This is the lowest level seen since last September when the rate was also 23 per cent.”

Bank of England: “At 68,689, house purchase approvals were stronger than recent months, returning to the levels seen at the beginning of the year. Approvals for remortgaging, at 46,231, were also stronger and have been on a slight upward trend.”

UK Finance: “House purchase approvals of 41,587 in July were similar to the monthly average of 41,567 over the previous six months. This was 9 per cent higher than in July 2016 when the market was markedly subdued after the EU referendum vote. Remortgaging approvals of 26,133 were up on the monthly average of 25,284 over the previous six months and three per cent higher than in July 2016.”


RICS: “New buyer enquiries were very slightly down compared with the previous month. This extends a run of reports in which buyer demand has failed to see any meaningful growth going back to November 2016. In keeping with this, newly agreed sales again declined (although only marginally), meaning this indicator has now been negative for five straight months. That said, reasonable growth in transactions has been reported in the South West over the last two months.

“A sustained deterioration in the flow of fresh listings coming onto the market continues to hamper activity, with new instructions dwindling for the seventeenth consecutive month during July. Consequently, average stock levels on estate agents’ books remain close to record lows, limiting choice for potential homebuyers. The lack of stock is once again a dominant theme mentioned by contributors to be holding back the market (with political uncertainty also frequently cited).”

Kate says: Of course it is the property prices get all the headlines, but property agents know that it’s volumes that really matter. And, as we can see from the indices, the market is softening despite the historically low supply levels.

This is partly due to demand falling post a recession ‘boom’ and partly because of some areas seeing affordability issues choke demand while others are lacking in new buy to let investment.

A survey of franchise owners from Belvoir showed that new landlords and investors are not coming through at the same rate as before. However, the good news so far appears to be that existing landlords are not only staying in the market, but some are still actively continuing to grow their portfolios – despite the government squeeze.

October 27, 2017

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