House prices surge past expectations in December but overall trend weak

House prices were up 2.2% compared to a 1.2% decline the month before and well ahead of expectations for a 0.2% increase.

On the year, house prices rose 1.3% after a 0.3% increase in November, comfortably beating expectations for a 0.4% jump.

Halifax managing director Russell Galley said: "Overall, house price growth in 2018 was very much within the range of 0-3% as we forecast at the start of the year. In 2019, we’re expecting continued stability in house prices with between 2% and 4% price inflation. This is slightly stronger than 2018, but still fairly subdued by modern comparison.

"However, this expectation will clearly be dependent on the Brexit outcome, with risks to both sides of our forecast. Of course, there are a number of other factors that will impact the market in 2019. The need to raise a significant deposit still acts as a restraint for those looking to buy a new home, limiting the number of potential purchasers.

"This year, mortgage payment affordability is more difficult to predict. There are competing pressures with signs of positive annual pay growth supporting affordability, but risks associated with the potential for higher interest rates are pulling in the other direction. On balance we do not see affordability pushing house price growth significantly in either direction. The shortage of homes for sale and continuing low levels of housebuilding both constrain the supply of houses, and in turn support high prices, which will continue to inhibit demand in 2019."

Pantheon Macroeconomics economist Samuel Tombs said no one should place any weight on the jump in Halifax’s house prices index in December.

"The index is three times as volatile as the similar Nationwide index, and while December’s increase was the biggest month-to-month increase since August 2015, it followed a sharp 1.2% drop in November. The 1.3% year-over-year growth rate is a much better guide to the underlying trend, sitting between other estimates of price gains. Nationwide reported that prices rose by 0.5% year-over-year in December, while Rightmove data showed that asking prices increased by 0.7% on the same basis. The average mortgage approval value increased at a slightly faster year-over-year rate of 2.3% in the three months to November.

"Looking ahead, surveys indicate that buyer demand has begun to fall sharply again, primarily due to Brexit uncertainty, which should mean that sale prices undershoot asking prices by a greater-than-usual margin. But the decline in risk-free interest rates that Brexit uncertainty also has triggered will feed through to lower mortgage rates soon."

Howard Archer, chief economic advisor to the EY ITEM Club, said: "The Halifax data does not change our view that the housing market is currently subdued. The Bank of England reported mortgage approvals for house purchases slowed to a seven-month low in November while the RICS reported buyer enquiries fell at a faster rate and for a fourth successive month.

"If the UK 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. Reduced uncertainty could help housing market activity to improve along with a likely gradual pick-up in consumers’ real income growth. Meanwhile, high employment, still low interest rates and a shortage of houses on the market will also likely offer some support."