The UK House Price Index for February recorded a monthly increase of 0.6%, with the annual rate of inflation now standing at 5.8%. The Nationwide House Price Index, March release also shows nationwide growth softening, with annual house prices increasing 3.5% in the 12 months to March (down from 4.5% in February) and down marginally (-0.3%) for the month, although this may prove to be a temporary trend.
The February RICS market survey showed little change from previous months, with both demand and supply levels remaining subdued with the South West recording the strongest levels of new buyer enquiries, while the East Midlands was the weakest. The report also recorded a distinctive fall in new landlord registrations, combined with strong tenant demand. We would therefor expect this to start to feed in to rental rises in the early part of summer.
Affordability constraints for borrowing owner-occupiers and reduced demand from buy-to-let investors, due to increased taxation on transactional and hold costs, should ensure that national house price inflation in the near-term will run at a relatively modest rate (by recent standards) of between 0-3%. Wage/household income growth will therefore become the main driver of any advance in the near-term. Despite a reduced level of demand, we believe the chances of any form of significant market downturn remain slim as levels of stock for sale remain low and the post-referendum economy performs above general expectations.
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