Current and future UK house price sentiment strengthens

Households across the UK perceive that the value of their home has risen over the last month, according to the latest House Price Sentiment Index (HPSI) from Knight Frank and IHS Markit.

February’s reading was the seventh consecutive month that the index has been in positive territory and it now stands at a new post-referendum high.

While February’s reading was at its highest level since the result of the EU Referendum, it’s worth noting that it remains comfortably below its peak of 63.2 reached in May 2014 mirroring the moderation in price growth which has been seen since then.

Gráinne Gilmore, head of UK residential research at Knight Frank, said: “The rise in household sentiment on house prices comes as a less cloudy picture of the UK economy starts to emerge. Earlier this month the Bank of England revised up its forecasts for GDP growth, and although the country still has to negotiate a withdrawal from the EU, the immediate economic conditions remain positive. Homebuyers and homeowners are also benefitting from near record-low mortgage rates, although affordability is an increasingly pressing issue in some areas.”

There remain fairly large regional variations, however. Households in ten of the 11 regions covered by the index perceived that the value of their property rose in February, led by those in London (65.2) and the East of England (62.0). Wales was the only region where households reported falling prices over the course of the month.

Outlook for house prices

The future HPSI, which measures what households think will happen to the value of their property over the next year, rose in February to 67.5, up from 65.5 in January and from 62.3 in December.

February’s reading was the highest achieved by the index since the UK’s referendum on EU membership, and is the first indication of household sentiment since the publication of the Government’s Housing White Paper. It does, however, remain firmly below its peak of 75.1 achieved in May 2014.

Mortgage borrowers (73.6) were the most confident that prices would rise, followed by those who own their home outright (69.7).

Grainne adds: “It is noticeable that sentiment on the future direction of house prices has particularly picked up in the Midlands and East of England, with the index reading for February close to or stronger than the average reading in the three months before the EU vote.

"This reflects the relative strength of price growth in these markets which are benefitting from the strong performances of urban areas and the relative price differential to properties in the South East and London.”

 Tim Moore, senior economist at IHS Markit, said: “UK households are gaining confidence about the outlook for their property values over the course of 2017, driven by the improved economic backdrop, resilient labour market conditions and a continued boost from ultra-low mortgage rates. The upward direction of travel for housing market sentiment in February has seen property price expectations recover to levels seen just ahead of the EU referendum, with this pattern apparent among households in all UK regions.

“Brexit-related anxieties appear to have receded among buyers, but there remains a sizeable list of factors likely to keep a brake on price momentum during the year ahead. These include localised affordability constraints for first time buyers, generally subdued pay growth, and a renewed squeeze on household budgets from rising living costs.”