A report by the Nationwide will make encouraging reading for homeowners and buy to let investors across the UK. The figures confirm that UK house prices posted annual growth of 2.3% to the end of February 2020. This is the strongest rate of growth for approaching two years and is a further increase on the 1.9% figure from January. At this moment in time the average UK house price now stands at £216,092.
Reasons for the ongoing recovery
This is the fifth month in a row that UK house prices have increased and while this predates the general election of 2019, the recent strengthening has been directly linked to the less volatile political climate. Towards the end of 2019 the UK economy was effectively paralysed with politicians going against the general public and political parties fighting amongst each other. Prior to Boris Johnson stepping forward and announcing a general election for December there seemed no short-term solution to this impasse. There are also other issues to take into account such as:-
UK employment market
Despite the economy effectively flatlining in the final three months of 2019, the UK employment market has remained fairly buoyant. As a consequence, buyers continue to return to the market thereby injecting a degree of competition for the limited UK housing stock.
Cost of borrowing
At this moment in time there is no real indication on the short term direction of UK base rates. Just a few weeks ago it seemed almost certain base rates would fall but this has yet to happen with the UK economy, on the whole, still stronger than experts had expected. As a consequence, the cost of borrowing remains relatively low with many prospective homeowners/investors looking to take advantage.
Challenges ahead
The truth is that the UK property market has performed far better than sceptics suggested in light of the Brexit vote back in the summer of 2016. Yes, there has been a reduction in growth and markets such as London have tipped into negative territory but to nowhere near the extent that had been suggested. There are also challenges ahead which include:-
The Brexit effect
Whether we like it or not, there is no doubt that Brexit is still a dark cloud (maybe more grey in colour these days) over the UK economy. The fact that we have more short to medium term direction is encouraging but trade talks with the EU will be long and very difficult. As the two parties continue to lock horns prior to the imminent start of discussions, it is near impossible to guess how events will unfold. However, what we do know is that markets have been boosted by a lifting of the political log jam in the UK which has injected a degree of confidence into the property market.
Coronavirus
While private landlords in China have been reporting a significant financial hit in light of the coronavirus, this has yet to directly impact the UK housing market. That said there will most certainly be financial hit to the UK economy in the short to medium term which will indirectly impact demand for houses and as a consequence house prices. Whether this might prompt the Bank of England to reduce UK base rates yet further in the short term remains to be seen. The coronavirus is a challenge, it is a fairly unique scenario but while extremely infectious the rate of death is much lower than the SARS outbreak and indeed more people die from flu each year.
Conclusion
It is fair to say that the UK property market has faced a number of challenges in recent years from Brexit to political uncertainty, a lacklustre worldwide economy to the coronavirus. Whether the consequences of the coronavirus result in a significant impact on the UK economy/housing market remains to be seen. However, the UK housing market has been extremely resilient over the years and there is no reason to doubt the long-term potential.