The latest reports from two of the UK’s biggest mortgage lenders show house prices going in opposite directions in February.
While Nationwide building society said the average price of a house in the UK rose by 0.3% in February to £196,930, Halifax reported a 1.4% fall over the month, with the average price dropping to £209,495.
Both lenders base their house price indices on mortgages they have approved, with adjustments made to produce a value for a typical house and iron out any unusual trends in lending. However, the loan books and adjustments are not the same, resulting in different figures.
Halifax’s annual rate of change, based on a comparison of the three months to February with the same period last year, has been running higher than Nationwide’s for some months. Its monthly price movements have also tended to be more erratic, with the bank reporting a 1.7% increase in January before last month’s dip.
For February, Halifax said prices were up by 9.7%, while Nationwide’s figure for annual growth was 4.8%. Although this was higher than the 4.4% reported the previous month, the building society said it had remained in a fairly narrow range, between 3% and 5%, since the summer.
Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, said Nationwide’s index was showing lower price growth than other measures, which could be a result of the sample of mortgages it used.
“Nationwide’s measure of house prices underplays the extent to which the housing market is heating up again,” he said. “The latest growth rates of all the other main measures of house prices have been significantly stronger over the last six months.”
Richard Donnell, the research director at property firm Hometrack, said Halifax had understated the level of house price growth until the end of 2012, and its index seemed to have been catching up since then. He added that Halifax does “a lot of new-build lending so softer valuations on new build in London might [have an] impact”.
Reports from lenders have shown strong activity in the mortgage market since the start of the year, and despite reporting a fall for February, Halifax said prices were rising “at a robust pace”, driven by a significant imbalance between supply and demand.
The bank’s housing economist, Martin Ellis, said: “While this position is likely to continue over the coming months, there are some tentative signs that the supply situation may be beginning to improve.”
Nationwide’s chief economist, Robert Gardner, said recent activity was likely to have been driven by the new stamp duty surcharge on second homes, which comes into effect in April. “This is likely to have brought forward a significant number of purchases, which in turn will probably result in a fall back in approvals during the spring/summer,” he said.
Looking further ahead he predicted further increases in property values. “We expect the underlying pace of activity to increase in the quarters ahead as improving labour market conditions and low borrowing costs provide ongoing support.”
Hansen Lu, a property economist at Capital Economics, said the monthly figures from both lenders suggested that the increased activity in the market “may, at least so far, be having only little impact on prices”.
He said this could be because prices were already so high that buyers were unable or reluctant to keep bidding up prices. “Other buyers, especially those purchasing for the first time, may be delaying until competition in the market cools after the April stamp duty deadline – helping to keep a lid on price growth,” he added.
Howard Archer, the chief UK economist at IHS Global Insight, predicted that prices would rise by about 6% over the year. However, he added that the EU referendum on 23 June posed a “potential major downside risk to housing market activity and prices”.
He said: “A vote for Brexit would be liable to see a marked hit to UK economic activity over the rest of this year and in 2017 amid heightened uncertainties, which would likely weigh down heavily on the housing market.”