UK house prices growth slows ahead of 'ballistic' buy-to-let rally

UK house prices growth slowed by more than expected in November to record the smallest rise since June, according to research by the Nationwide building society.

The Chancellor George Osborne's new 3% surcharge on Stamp Duty on buy-to-let (BTL) properties and second homes, which was announced this week and will come into force from April 2016, is expected to lead to a frantic rush as prospective investors snap up properties in the next four months to avoid the new charge.

The Nationwide house price index rose 0.1% in November compared to the previous month, down from the 0.6% monthly rise recorded in October, and lower than the consensus forecast for a 0.50% increase.

The year on year measure showed a 3.7% increase, lower than the estimated 4.2% and down slightly from October's five-month high of 3.9% and 3.8% in September and the 26-month low of 3.2% in August.

Data from the Land Registry on property prices in England and Wales was also released on Friday, showing October recorded a monthly increase of 0.4% and an annual price increase of 5.6% to take the average property value in England and Wales to £186,350.

Strong demand, weak supply to continue?

House prices are being supported by strong demand and numbers of available homes reportedly at the lowest level since the late 1970s, with the latest figures from the Royal Institution of Chartered Surveyors showing new home building instructions fell for the 14th time in 15 months.

Nationwide's chief economist Robert Gardner said fact that house price growth had remained in a fairly narrow range over the past six months, broadly consistent with earnings growth over the longer term, "bodes well" for a longer increase in housing market activity, though he admitted this depended to a large extent on building activity keeping pace with increasing demand.

He praised the Chancellor's proposed range of measures aimed at boosting housing supply but noted "the current rate of construction activity is well below the projected rate of household formation".

He said only 135,000 new homes were built in England in the twelve months to September 2015, well below the 220,000 or so new households that are projected to form each year over the next decade.

Economist Howard Archer from IHS Global Insight said it was notable that Nationwide’s house price measure had recently been weaker than most other reports, while at the top end of forecasts, the latest data from Halifax showed house prices were up 9.7% year-on-year in the three months to October.

"Despite the muted November performance reported by the Nationwide, we retain the view that house prices are likely to see solid increases over the coming months," Archer said, predicting house prices to rise by around 6-7% or more over 2016 due to the shortage of properties on the market.

He added that the Chancellor's new 3% surcharge is likely to lead to an increase in housing demand and exert upward pressure on prices as prospective buyers look to beat the increase.

"Further out, the move could modestly dilute housing market activity and upward pressure on prices."

In a marketing email, one mortgage broker said the BTL market was "about to go ballistic", with a four-month "once in a lifetime opportunity to buy a leveraged investment against the London property market at 3% less than it will cost in upfront cash from 6 April 2016".