Housing slowdown expected

Property shares hit a year’s low recently, with the industry index falling ten per cent over the past month. And house price growth in July reportedly decelerated to its lowest pace since April 2006, setting the scene for a potential wider slowdown later in the year. Building society Nationwide’s chief economist Fionulla Earley believes economic data suggests household finances ‘are coming under considerable pressure and that house prices and consumer spending will both see a slowdown in the second half of the year’.

Accordingly, the Bank of England’s Monetary Policy Committee decided to give the economy a breather from the recent upward interest rate trek by holding the cost of borrowing at 5.75 per cent. The industry is unsure whether this signifies the peak has been reached, with Earley noting that the economy remains resilient to the committee’s wiles and guessing a rise to six per cent is still possible.

Oliver Gilmartin, senior economist at the Royal Institution of Chartered Surveyors anticipates a sluggish period going into Christmas: ‘Consumer spending is likely to ease back going forward as the wealth effects that have been supporting a “Cinderella culture” start to wane. We continue to expect a further interest rate hike.’

Offering a more optimistic view, Stuart Law of property investment group Assetz believes ‘this is the first signal that interest rates have reached their peak and [we] expect the MPC to show some patience as it waits to judge the impact of its recent rises’. He trusts inflation will return to two per cent or less before the end of the year, rendering further rises ‘unnecessary’.

Also impacting on the sector were recent pledges from the Prime Minister to boost the housing supply with three million new homes by 2020 and to ease some of the mortgage burden by facilitating the provision of more longer-term, affordable mortgages.