Major surprise as Halifax reports house prices spiked 2.2 per cent month-on-month in December

Last month’s data pushed the annual rate of increase back up to 1.3 per cent in the three months to December from just 0.3 per cent in the three months to November (which had been the lowest since December 2012).

The Halifax house price measure has been particularly volatile in recent months and it is notable that December’s monthly increase of 2.2 per cent followed a drop of 1.2 per cent in November.

The figures are also at odds with most surveys and data pointing to weak house market activity and prices late on in 2018, with heightened Brexit uncertainties widely considered to be having a negative impact.

The underlying picture on the Halifax data still looks weak with house prices falling 0.4 per cent quarter-on-quarter in the fourth quarter and the annual rate of increase at just 1.3 per cent.

The the lender’s data contrasts with Nationwide reporting sharp weakening in house prices in November to new lows.

The Bank of England reported mortgage approvals for house purchases slowed to a seven-month low in November while the RICS reported buyer enquiries fell at a faster rate and for a fourth successive month. If the UK manages to leave the EU with a “deal” at the end of March, we expect UK house prices to eke out a modest gain of 2 per cent over 2019.

Howard Archer, chief economic advisor to the EY ITEM Club, said: “There have recently been significant monthly variations in the house price data of the Halifax and the Nationwide, with the Nationwide generally reporting much smaller monthly movements.

“Indeed, the Nationwide reported that house prices fell 0.7 per cent month-on-month in December which was the sharpest monthly fall since July 2012. Prices had previously risen 0.4 per cent month-on-month in November, having been flat in October. Annual house price inflation on the Nationwide’s measure fell back sharply to 0.5 per cent in December, which was the lowest since February 2013. It had previously edged up to 1.9 per cent in November from the previous low of 1.6 per cent in October. It is down from a 2018-peak of 3.2 per cent in January and 2.6% at the end of 2017.

“The recent sharp monthly movements in the Halifax measure – and the contrast between the Halifax and Nationwide data - highlights the fact that house price measures can be volatile and differ from month to month between reporting agencies. It is therefore best not to attach too much importance to one survey but to try and take an overview.”

Mr Archer added: “November’s level of 63,728 took mortgage approvals for house purchases towards the bottom of the 63,000-68,000 range that has broadly held for the past 2 years. It fuels the belief that Brexit and economic uncertainty may now be having an increased dampening on housing market activity. Housing market activity is also being limited by still relatively limited consumer purchasing power (despite some recent improvement), fragile consumer confidence and, very possibly, wariness over higher interest rates. Although it is worth noting that there are varying performances across regions with the overall national picture dragged down by the poor performance in London and parts of the South East.

“House buyers will also likely be concerned about further interest rate hikes over the coming months – even if they are likely to be gradual and limited. It should also be kept in mind that the share of outstanding mortgages on variable interest rates has fallen to a record low around 35 per cent, which is half the peak level of 70 per cent in 2001.

“Housing market activity and prices are also likely to be pressurised by stretched house prices to earnings ratios and tight checking of prospective mortgage borrowers by lenders. According to the Halifax, the house price to earnings ratio was 5.57 in December. This was up from 5.46 in November and was above the long-term (1983-2018) average of 4.26. Furthermore, mortgage lenders have been tightening their lending standards amid pressure from the Bank of England.”