House price growth slowing, official figures show

More evidence emerged of a slow down in house price growth as official figures, which lag similar data produced by lenders, confirmed a levelling off in September that was rather unexpected.

Average house prices in the UK increased by 7.7% to £218,000 in the year to September, the Office for National Statistics said on Tuesday, which was unchanged from the rate in August.

This was below the 8.1% growth expected by the market and compared to the peak of 9.3% in June.

The official house price index rose by 0.2% month-to-month in September, while August’s monthly increase in prices was revised down to 0.6%, from 1.3% originally.

On a seasonally adjusted basis, average prices rose by 0.5% month-on-month in September, a touch faster than the 0.3% monthly increase recorded for August, revised down from 0.9%.

The quarterly rate of growth dropped to 1.2% from 1.8% last month, which economists said suggested that house price growth has lost some momentum.

English house prices increased by 8.3% to an average of £234,000, while Wales was up 4.4%, Scotland by 3.4% and Northern Ireland by 5.4%.

Growth in London of 10.9% was only surpassed by that in the East region of 12.1%, with the South East growing 9.9% and the slowest annual growth seen in the North East, where prices increased by 1.5% over the year.

"The official house price index has been slower than other measures to register the hit to demand from June’s Brexit vote, because it is based on completed transactions," said Sam Tombs of Pantheon Macroeconomics.

He noted that demand has been supported recently by falls in mortgage rates, though these are likely to be reversed soon due to the surge in swap rates over the last month, and rising loan-to-income ratios, which should also be constricted soon.

"The Financial Policy Committee’s cap on the proportion of mortgages issued at very high loan-to-income ratio now is close to biting. House price growth therefore will be increasingly constrained by growth in households’ incomes, which look set to stagnate in real terms next year as inflation rises and as job gains slow," Tombs said.

Capital Economics' Hansen Lu was in general agreement: "In all, house price inflation appears to be losing momentum, albeit at a gradual pace. With house prices already high, real wage growth set to slow and confidence in house prices still short of where it was ahead of the referendum, we expect house price growth to slow further into 2017."