House price stagnation to continue, says Nationwide

Sale signs Nationwide has previously expressed surprise at the resilience of prices in 2011

UK house prices remained relatively unchanged in 2011 and more of the same is expected, the Nationwide has said.

The building society said that the average home rose in value by 1% in 2011, but fell by 0.2% in December compared with the previous month.

The economic climate was likely to lead to a similar situation for the housing market in 2012, it said.

There were geographical differences. Prices in Northern Ireland fell sharply in 2011 but rose in London.

"The 1% rise in house prices recorded over the past 12 months could hardly be described as a strong performance, but against a backdrop of anaemic economic growth and a deteriorating labour market, UK house prices were surprisingly resilient in 2011," said Nationwide's chief economist Robert Gardner.

"2012 is not shaping up to be much better than 2011 for the UK economy or the housing market."

Geographical range

The average home is worth £163,822, according to the Nationwide, which calculates the figures using its own mortgage data.

Arguably, the best measure of current trends in house prices is to compare the average price of the past three months with the average price of the previous three months.

Start Quote

With 2012 shaping up to be a brutal year for jobs and the economy, even low interest rates will become less of a support”

End Quote Nicholas Ayre Home Fusion

On this measure, Nationwide's data shows a rise of 0.4% in the three months to the end of December.

The housing market is not the same across the UK and can even look different on a neighbourhood-by-neighbourhood basis.

In the final three months of the year, the annual price change in 10 of 13 areas of the UK ranged between a 2% rise and a 2% fall.

However, Northern Ireland has seen an 8.7% fall in prices in 2011 and London has seen a 5.5% rise over the year, the Nationwide's figures show.

Regional fluctuations are more stark in the house price figures released by the Land Registry on Friday.

Overall, it said that prices in England and Wales had dropped by 1.9% in the year to the end of November.

On a regional level, this ranged from a 5.4% drop in average prices in the North East of England, to a 1.4% rise in London.

On a more local level, prices fell over the year by 19.8% in Hartlepool and 13.9% in Oldham, and rose by 7.1% in Westminster, London.

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UK house prices

Year on year % change

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Debt levels

The lack of market activity was also displayed by figures from the Bank of England, which showed that housing equity withdrawal remained negative in the third quarter of the year.

Regional annual house price changes

  • North West: down 4.8%
  • Wales: down 1.6%
  • London: up 1.4%
  • West Midlands: down 1.8%
  • Yorkshire and the Humber: down 3.4%
  • South West: down 1.9%
  • North East: down 5.4%
  • East Midlands: down 2.5%
  • South East: down 0.9%
  • East: down 2.3%

Source: Land Registry; year to end of November 2011

The £8.6bn injection of equity reflected low levels of sales, rather than householders making an active effort to pay off their mortgages more quickly.

The boom years of the last decade saw a high rate of housing equity withdrawals, largely driven by buyers taking on more debt in order to move into a bigger property or borrowed money against the rising value of their home to buy other items such as a new car.

This process seemingly ground to a halt when the financial crisis hit in 2008.

Instead, the data suggests that households are now staying put, and gradually paying off their mortgages in line with their repayments schedule, and possibly injecting more of their own money into their properties via home improvements.

Outlook

Mr Gardner, at Nationwide, said that a fall in real income for many people, as well as high unemployment and an uncertain economic outlook, had restricted activity among buyers in 2011.

Yet, low interest rates and a lack of newly-built homes meant supply was also low and stalled any price falls.

He predicted that the same low level of activity was expected in 2012, although the outlook would depend "crucially" on how the wider UK economy performed.

The Nationwide is the first to publish figures for the year as a whole. Prices are expected by most observers to fall a little in 2012, echoing the Nationwide's prediction.

"We suspect that squeezed purchasing power, a now markedly weakening labour market, and major concerns over the economic outlook will limit potential buyers and weigh down on house prices through to mid-2012 at least," said Howard Archer, of IHS Global Insight.

"On top of that, there still seem to be significant difficulties in getting a mortgage for many people."

Nicholas Ayre, of UK buying agents Home Fusion, said: "Interest rates and mortgages are key. If the Bank [of England] rate remains at its current level, and if lenders do not go back into their shells, 2012 could see house prices continue to stagnate rather than collapse. That is probably the best we can hope for.

"But with 2012 shaping up to be a brutal year for jobs and the economy, even low interest rates will become less of a support. If the economy deteriorates significantly, house prices in the UK will come under further pressure."

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