Best of the Week
Most Popular
1.US Paving the Way for Massive First Strike on North Korea Nuclear and Missile Infrastructure - Nadeem_Walayat
2.Trump Reset: US War With China, North Korea Nuclear Flashpoint - Video - Nadeem_Walayat
3.Silver Junior Mining Stocks 2017 Q2 Fundamentals - Zeal_LLC
4.Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - Nadeem_Walayat
5.The Bitcoin Blueprint To Your Financial Freedom - Sean Keyes
6.North Korea 'Begging for War', 'Enough is Enough', is a US Nuclear Strike Imminent? - Nadeem_Walayat
7.Bitcoin Hits All-Time High and Smashes Through $5,000 As Gold Shows Continued Strength - Jeff_Berwick
8.2017 is NOT "Just Another Year" for the Stock Market: Here's Why - EWI
9.Gold : The Anatomy of the Bottoming Process - Rambus_Chartology
10.Bitcoin Falls 20% as Mobius and Chinese Regulators Warn - GoldCore
Last 7 days
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17
Q4 Pivot View for Stocks and Gold - 14th Oct 17
Gold Mining Stocks Q3’17 Preview - 14th Oct 17
U.S. Mint Gold Coin Sales and VIX Point To Increased Market Volatility and Higher Gold - 14th Oct 17
Yuan and Gold - 14th Oct 17
Tips for Avoiding a Debt Meltdown - 14th Oct 17
Bitcoin Hits New All-Time High Above $5,000 As Lagarde Concedes Defeat and Jamie Demon Shuts Up - 13th Oct 17
Golden Age for GOLD, Dark Age for the Stock Market - 13th Oct 17
The Struggle for Bolivia Is About to Begin - 13th Oct 17
3 Reasons to Take Your Invoicing Process Mobile - 13th Oct 17
What Happens When Amey Fells All of a Streets Trees (Sheffield Tree Fellings) - Video - 13th Oct 17
Stock Market Charts Show Smart Money And Dumb Money Are Moving In Opposite Directions—Here’s Why - 12th Oct 17
Your Pension Is a Lie: There’s $210 Trillion of Liabilities Our Government Can’t Fulfill - 12th Oct 17
Two Highly Recommended Books from Bob Prechter - 12th Oct 17
Turning Point Nations On The Stage - 11th Oct 17
The Profoundly Personal Impact Of The National Debt On Our Retirements - 11th Oct 17
Gold and Silver Report – Several Interesting Charts - 10th Oct 17
London House Prices Are Falling – Time to Buckle Up - 10th Oct 17
The S&P Is A Bloated Corpse - 10th Oct 17
Are Gold and the US Dollar Rallying Together? - 10th Oct 17
Is Silver Turning? - 9th Oct 17
Bitcoin Needs Electricity, Gold CONDUCTS Electricity - 9th Oct 17
S&P 500 At Record High But Will Stocks Continue Even Higher? - 9th Oct 17
Gold and Silver on Major Buy Signal, The Cycle is Up - 9th Oct 17
How To Fight Corruption in the Philippines - 9th Oct 17
Stock Market Bulls Still in Charge - 9th Oct 17
DiEM25: Europe Without Nations or Religion - 9th Oct 17
Gold Price Readying to Rally - 8th Oct 17
Gold Price in Q3 2017 - 8th Oct 17
PassMark Bench Mark of OVERCLOCKERS UK Custom Built Gaming PC (5) - 8th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

UK Property Market: Slow Growth Does Not Equate To Decline

Housing-Market / UK Housing Oct 18, 2016 - 03:09 PM GMT

By: Nicholas_Kitonyi

Housing-Market

The property market is one of UK’s main economic drivers given the clear link to the financial industry. Right now, several people have expressed doubts on how the UK economy could fair following the separation from the EU single market. And as analysts have pointed out, the most problematic aspect comes from the uncertainties surrounding the separation process.


Many now believe that the slow growth rate experienced in the UK housing market following the referendum vote could be sign of things to come.

As demonstrated in the chart above, the UK House Price index growth rate has slowed significantly after hitting multi-year highs of 701.4 points in June. In the last three months, the index has been pegged at about 693 point on average, which mirrors similar levels achieved in March and May this year.

The UK house price index is calculated using the market value of the properties sold. However, as you may have noticed, not all properties are actually sold at their market value in a given month. For instance, ready steady sell offers property owners an opportunity to sell their houses quicker, but at a discount. Sellers can get up to 95% of the market value. However, most quick sell agencies buy properties at up to 20% discount of the listed market value.

This means that the figures we are getting from the property market may not necessarily be reflective of what exactly changed hands during a particular month. Quick sell property agencies buy houses and related assets at a discount and then sell them later at the market value. The final sale could take place a month or two later, or even longer.

It’s the risk of holding property for sale that UK house owners should be scared of according to earlier price predictions following the Brexit vote. Former Chancellor George Osborne expressed his optimism on the UK property market indicating a potential 18% decline in housing prices by next year. However, there are those who believe that even though those predictions appear to be way off the mark, an 18% squeeze will only take the market back to last year’s levels.

In addition, when you look at the current trend of the UK house price index versus the UK GDP growth, it’s pretty clear that investors are paying less attention to the status of the economy.

As demonstrated in the comparison chart above, the UK House Price index has taken an upward trend, which appears to be barely disrupted especially when assessing the movement on a long-term basis. As such, given the circumstances, it is hard to argue that there could be a slowdown ensuing due to unpredictable economic condition in a post-Brexit Britain.

On the bright side, the UK House Price index could actually continue to rally in the coming months due to the recent developments in the property market. In April, a supplementary 3% stamp duty charge on second homes came into effect. This change is likely to have minimum effect on people’s decisions to buy homes. However, the impact on the average price of a house in the UK could be enormous. This is because, investors (buy-to-let owners) will likely transfer that cost to the tenant.

Another thing that makes the UK property market more attractive is the fact that the prime lending rate was cut by 0.25 percentage points to bring it down to 1.25% from 1.50%. This makes accessing lines of credit much cheaper to investors thereby increasing investment activity in the housing market.

The relationship between the UK Prime Lending Rate and the House Price Index has also been intriguing, especially when you look at things from the late 2013 to present. Prior to 2013, the UK Prime Lending rate and the House Price Index appeared to have a direct relationship but since then, things have changed.

As shown on the comparison chart above, the UK House Price Index has maintained an upward trend since late 2013 whereas the Prime Lending Rate has remained vastly unchanged, bar the last two months.

The sound explanation to this scenario can be pinned on the fact that with stable lending rates, people have managed to access credit easily. In addition, while the UK GDP growth has been rather volatile during the same period, the general outlook has been promising.

Another attribute could be due to the fact that in 2014, the then Chancellor George Osborne introduced a new stamp duty system which allowed progressive levying on house sales. This reduced the gaps between stamp duty fees paid by house sellers in various pricing brackets.

Conclusion

In summary, there are fears that the separation of Britain from EU could end up denying it an opportunity to access the single market. This could have devastating effects on UK’s financial industry and by extension the property market. There are reports that Prime Minister, Theresa May is prepared to make payments to Brussels in order to retain access to the single market.

Whether or not the UK retains access to the single market, chances are that the housing market will continue to thrive because it has already demonstrated high levels of autonomy on other economic drivers over the last few years. The growth might not be as much as it used to be, but this does not equate to a decline.

By Nicholas Kitonyi

Copyright © 2016 Nicholas Kitonyi - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife