UK house prices stagnate amid Brexit uncertainty - Nationwide

Annual house price growth stagnated in January amid Brexit uncertainty, according to the latest survey from Nationwide.

House prices rose by 0.3% month-on-month this month, a touch above consensus expectations for a 0.2% increase and an improvement on the 0.7% drop seen the month before.

On the year, meanwhile, prices were up 0.1%, better than the flat reading expected but down from 0.5% growth in December.

Nationwide's chief economist Robert Gardner said indicators of housing market activity, such as the number of property transactions and the number of mortgages approved for house purchase, have remained broadly stable in recent months, but forward-looking indicators indicated some softening was likely.

"In particular, measures of consumer confidence weakened in December and surveyors reported a further fall in new buyer enquiries towards the end of 2018. While the number of properties coming onto the market also slowed, this doesn’t appear to have been enough to prevent a modest shift in the balance of demand and supply in favour of buyers in recent months.

"It is likely that the recent slowdown is attributable to the impact of the uncertain economic outlook on buyer sentiment, given that it has occurred against a backdrop of solid employment growth, stronger wage growth and continued low borrowing costs.

"Near term prospects will be heavily dependent on how quickly this uncertainty lifts, but ultimately the outlook for the housing market and house prices will be determined by the performance of the wider economy - especially the labour market."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, attributed the drop in year-over-year growth largely to Brexit uncertainty.

"The slowdown has occurred at a time when growth in real incomes is improving, thanks to rising nominal wage growth and falling inflation. Mortgage rates flatlined last year - the rate for a 5-year fixed-rate mortgage at a 75% LTV held steady at 2.0% throughout 2018 - and the supply of credit has remained constant. As a result, this is a sentiment-led deterioration in house price growth, which chimes with the drop in measures of consumers’ confidence since November, when it became clear that the withdrawal agreement would not be ratified seamlessly.

"Looking ahead, increasing numbers of prospective house-buyers likely will wait a few months for Brexit uncertainty to fade, forcing sellers to lower asking prices to attract braver buyers in the interim. As a result, year-over-year declines in house prices in the near-term should not be ruled out."

Howard Archer, chief economic advisor to the EY ITEM Club, said: "If the UK ultimately manages to leave the EU with a deal at the end of March, we expect UK house prices to eke out a modest gain of 2% over 2019. If the UK leaves the EU at the end of March without an approved Brexit deal, house prices could fall by around 5% in 2019.

"If Brexit is delayed, ongoing uncertainty is likely to weigh down on the housing market and could well see house prices stagnate or even fall slightly.

"The downside for house prices is being limited by a shortage of houses for sale. High employment is also supportive for the housing market while mortgage interest rates are still at historically low levels and will remain so even if the Bank of England does hike rates modestly further over the medium term."