08 November 2016

Blog: Halifax House Price Index: Continued Momentum

by Scott Fulton | 8 November 2016

Halifax has produced its House Price Index (HPI) for October 2016. This shows an annual rate of inflation at 5.2%, down from 5.8% recorded in September and closer to the Nationwide HPI which showed 4.6%. Compared to September, the Halifax Index shows a 1.4% increase in October. The Nationwide Index for the same period showed no change. The October rate of inflation from the Halifax is better than commentators had been expecting.

In its commentary, the Halifax highlights that continued, albeit slower, house price inflation should be expected for the remainder of 2016 as a function of “very low mortgage rates and a shortage of properties available for sale”. These demand factors should outweigh affordability levels but the latter remains a constraint on significant price growth in the medium term.

The lack of supply may be a feature of the Royal Institute of Chartered Surveyors’ (RICS) Survey due later this week. While results from this Survey have shown improvement in recent months, from the immediate lows following the Referendum, it has pointed consistently to the historically low level of properties on the market.

Market focus is likely to turn to the contents of the Autumn Statement (due 23rd November 2016). Much of what has been flagged already suggests a demand-side approach to the UK housing market, providing support for SME home builders for example. However, there remain calls for the Chancellor to review the SDLT (Stamp Duty) changes brought in by his predecessor. Specifically, relief at the top end of the scale and/or some form of short term “holiday” have both been promoted in recent months.

Ahead of this critical announcement, the UK house building sector provides a range of trading updates. Redrow, Taylor Wimpey, Crest Nicholson, McCarthy & Stone, Barratt and Bovis will all provide detail on their recent trading experiences before 23rd November. Taking the recent announcement from Persimmon as a guide, it is likely that they will all – to varying degrees – highlight a more robust market for new homes than appears to be the case for the existing housing stock. Benefiting from the underlying price inflation highlighted by the Nationwide and, now, Halifax, the new home developers are also supported by Help to Buy. This programme, which may also receive attention in the Autumn Statement, provides a key competitive advantage for new homes over existing properties and is one of the principle factors behind the outperformance of new homes over old in the last 12 months.

UK house builders’ share prices have been amongst the most affected in the post-Referendum equity market but, almost universally, the companies themselves have pointed to continued momentum in their markets. This trend is likely to be reinforced in the run-up to the Autumn Statement which may provide further support for the sector and its constituents.