Is it us, or does it feel like there’s a new house price index out every other day at the moment? This morning Nationwide published its latest monthly index, showing not only that property prices across the UK have breezed past pre-crisis levels - but also that London prices have grown by (sit down if you’re not already) 26% in the past year. Crikey.
To be fair, along with Halifax and Hometrack, Nationwide is one of the most reliable house price indexers out there. This morning’s figures showed prices rose 1% between May and June (up from 0.7% the month before) and 11.8% year-on-year, up from 11.1% in May. Although it’s worth pointing out, of course, that a lot of that rise is down to out-of-control prices in London and the South East, as you can see from the chart below:
The best performing were, obviously, London and the South East, while Scotland brought up the rear - but with annual growth of 5.4%, which is still pretty decent.
Still: the average house price in the UK is now a not-insignificant £188,903 (just below £142,000 in Scotland; a touch over £400,000 in London). Bearing in mind new measures introduced by the Bank of England, which wants lenders to reduce the number of loans at more than 4.5 times people’s income to just 15% of the mortgages they lend out, that’s a little awkward. The average full-time salary is just over £26,500, according to the Office for National Statistics. The average house price is now 7.1 times that. Even if Mr Average has saved a 10% deposit, he’ll still need to borrow 6.4 times his salary.
That could be problematic - although Robert Gardner, Nationwide’s chief economist, pointed out that the number of loans made ‘at or above’ 4.5 times income is ‘currently some way below the 15% cap’. Let’s hope those cooling measures (which also include interest rate ‘stress tests’) work, though, or house prices are going to keep rising faster than wages, and either the number of mortgages being lent out will plummet or banks will flaunt Mark Carney’s new rules and loan-to-income ratios will keep rising.
Gardner also pointed out that a rise in interest rates may cause a slowdown in house prices as everyone thinks twice about how much they can borrow, but that the real way to bring prices down is to build more houses. And unfortunately, the Bank of England ‘does not have the tools to address’ that particular problem.