Nationwide building society has warned that property prices inflation throughout the UK are likely to continue to accelerate (albeit mildly) well into next year as rates of construction are still lagging behind growth in demand.
While the rate of house price inflation is still relatively stable, the “concern remains that construction activity will lag behind strengthening demand, putting upward pressure on house prices and eventually reducing affordability” said Nationwide ‘s chief economist, Robert Gardner.
According to the building society ‘s own figures, average property prices are currently around 4.4% higher than they were last year, following a 0.3% increase over the past month and fairly consistent quarterly growth of 1.3%. The average house in the UK now costs £196,829.
Over the course of 2015, house price growth started fairly slowly but picked up for the rest of the year. Demand grew steadily and even with the traditional seasonal drop around December, it remained higher than in 2014 and currently there are around ten prospective buyers for each property available.
Indeed, according to the National Association of Estate Agents, the number of properties held by each of its members is currently around half of what it was in 2005, at 37 ñ compared to 374 potential buyers listed per agent.
According to Gardner, it is only the level of supply that is holding the market back from equilibrium. The steadily strengthening economy, bringing with it increased levels of employment and (relatively) healthy wage growth is responsible for growing demand. However, the lack of supply means that house price inflation is still outstripping wage inflation, which is currently more or less in line with general inflation.
Gardner said: “Employment has continued to rise at a robust rate in recent months and, while the pace of earnings growth has slowed somewhat, inflation-adjusted terms regular wages continue to rise at a healthy pace.”
He also pointed to the low interest rate environment as helping to boost demand, and argued that as this trend continues, “the demand for homes is likely to strengthen in the months ahead.”
The NAEA reported that they have seen increased investment coming in, but, as its managing director, Mark Hayward, said: “we are still waiting to see new homes being built, and while we wait, house prices continue to rise.”
Hayward did describe a potential light at the end of the tunnel, at least for first-time buyers who are currently bearing the brunt of a lot of the difficulties in the market ñ rates of first-time buyers actually buying houses fell from 26% of the market share of sales in 2014 to 24% in 2015.
Hayward said that this light will come once tax changes come in in April and the percentage of the properties going to landlords drops.
“Once the new tax rate increase in April is in place,” he said, “we may see less investment from buy-let or second home investors, which may mean less competition for first-time-buyers.”