Has the ripple reached the North?
Summary
Monthly price falls of -0.3% in March reversed much of the earlier growth in 2018 according to Nationwide. This is in line with our +1.0% forecast for 2018. Price growth has accelerated across the north of England over the last three months compared to the previous twelve, but has slowed in the Midlands following the earlier slowdown in the South. The shift of price growth to the north of the country is well underway, although average price growth at a national level looks set to remain subdued.
Alongside slowing price growth new instructions for house sales have hit their lowest level since the downturn, apart from in the immediate aftermath of the EU referendum, according to the RICS survey. Predictions of subdued market activity characterised the survey through 2017 and this has continued. The rising transaction levels seen across the Midlands, North, and devolved countries last year have levelled off, and there are continued falls in London.
This subdued activity is likely to continue despite an improving outlook for consumers. Easing inflation was accompanied by more positive consumer sentiment in March according to the GfK survey. But after a year of sub-inflation wage growth any bounce back in consumer spending is likely to be limited in the short term – even if CPI comes back in line with its 2% target by the end of the year, as anticipated. The Financial Policy Committee of the Bank of England noted an increasing proportion of mortgage lending reaching the maximum loan to income ratio imposed by 2014 regulation. If this continues the FPC may take further regulatory action, which might in turn constrain house price growth and market activity.