Key headlines for February 2015
- Households in Scotland perceived that prices fell this month, the first time any region has reported such a decline in nearly 18 months
- Expectations for future price growth fall to the lowest level in 18 months
- Households in the South East expect the strongest price rises over the next 12 months
- Some 6.2% of UK households plan to buy a property over the next year
Change in current house prices
Households perceive that the value of their home rose in February, according to the House Price Sentiment Index (HPSI) from Knight Frank and Markit Economics.
Some 19.0% of the 1,500 households surveyed across the UK said that the value of their home had risen over the last month, while 6.0% reported a fall. This gave the HPSI a reading of 56.5 , the twenty-third consecutive month that the reading has been above 50.
Any figure over 50 indicates that prices are rising, and the higher the figure, the steeper the increase. Any figure below 50 indicates that prices are falling.
However, while the majority of households in the UK perceive the value of their property has risen in the last month, the overall reading continues to moderate. February’s index represents the lowest perceived rate of price growth since August 2013.
Households in ten of the 11 regions covered by the index report that prices rose in February, with Scotland (49.4) the only exception. This is the first time any region within Great Britain has reported a price fall in 18 months.
Londoners reported the biggest perceived rate of house price growth in February (62.7), followed by households in the East of England (60.5) and the South East (59.1).
A lead indicator
Since the inception of the HPSI, the index has been a clear lead indicator for house price trends. The index moves ahead of mainstream house price indices, confirming the advantage of an opinion‐based survey which provides a current view on household sentiment, rather than historic evidence from transactions or mortgage market evidence.
Outlook for house prices
The future HPSI, which measures what households think will happen to the value of their property over the next year, fell again in February to 68.2, down from 69.5 in January.
This is the third consecutive monthly fall in house price expectations across the UK and the lowest reading since August 2013. The future HPSI stands well below its record high of 75.1, which was seen in May 2014.
Households in the South East (73.8) expect the strongest price rises over the next 12 months, followed by those in the East of England (72.9) and London (72.9). Interestingly, households in Scotland still expect average prices to rise over the coming 12 months (61.0), despite a perception that prices fell in February.
Housing market activity
Some 6.2% of UK households said they planned to buy a property in the next 12 months. This is up from 5.9% in January. On a regional basis, one in ten households in London are planning a purchase in the next 12 months, followed by the West Midlands where 9.2% of households said they would be buying a property in 2015.
Grainne Gilmore, Head of UK Residential Research at Knight Frank, said:
“The easing in house price sentiment indicates that the market is in for a steadier year than 2013 or 2014. While buying intentions are relatively high, there is less conviction that prices will rise strongly this year. Just 43% of households expect the value of their home to rise over the next 12 months, compared to 55% in February last year.
“The moderation in sentiment comes despite the prospect of a prolonged period of ultra-low rate inflation and low unemployment. However new mortgage rules and affordability constraints in some parts of the country are likely to weigh on price growth. In the shorter-term, many households are focussing on the election, the outcome of which could change some household finances if taxes or benefits are reformed.”
Tim Moore, senior economist at Markit, said:
“UK house price sentiment continued to cool in February, with both the current and future property value indices falling further below the peaks seen in 2014.
“Despite a sustained retreat in recent months, the latest survey indicates that overall house price sentiment remains at an elevated level by historical standards.
“Around six times as many UK households forecast a rise in their property value during the year ahead as those that expect a decline.
“Improving mortgage availability, rising consumer confidence and a reduced likelihood of impending interest rate rises all look set to support UK property prices over the course of 2015.”