Households across the UK perceive that the value of their home rose in May, according to the latest House Price Sentiment Index (HPSI) from Knight Frank and Markit Economics.
Some 25.6% of the 1,500 households surveyed across the UK said that the value of their home had risen over the last month, while 3.6% said that prices had fallen. This resulted in a HPSI reading of 61.0 (see figure 1).
Although May’s reading was a slight increase on the 60.1 recorded in April, it remains below the peak of 63.2 reached two years previously in May 2014. While sentiment picked up over the course of the month, it remains in line with the longer-term trend. On a three-month rolling basis the HPSI reading was 60.6 compared to 59.2 for the comparable period three months previously
There was a notable pick-up in perceived house price growth among those aged 18-24 with the index rising to 57.7 in May, up from 52.6 in April, potentially reflecting affordability concerns among this age group. Conversely, household sentiment softened among those aged over 55 month-on-month, although such individuals remain the most bullish when it comes to perceived price growth.
Gráinne Gilmore, head of UK residential research at Knight Frank, said: “The steadiness of the headline house price sentiment index during such political uncertainty over the EU is a reflection that the fundamentals of the market remain unchanged – there is still an imbalance between demand and supply of housing, and for those with access to deposit payments, mortgage rates are still near record lows.
“However, there has been some softening in sentiment among those aged 55 and over – the age-group who have the largest equity stake in the UK housing market. While the sentiment reading for this group is still one of the highest, indicating they expect prices to rise, there has been a notable fall from last month, indicating that the current economic and political climate is affecting some corners of the market.”
The future HPSI (figure 1), which measures what households think will happen to the value of their property over the next year, rose slightly in May to 70.3, from 68.8 in April. Households in the South East were the most confident that prices will rise in the next 12 months (79.5), followed by those in London (78.2) and the East of England (77.9).
Expectations that interest rates will remain low for longer, as shown by Markit’s UK Household Finance Index, appear to have helped offset any concerns over the wider economic backdrop. Around 46% of households expect rates to rise in the next 12 months, down sharply from a peak of 78% in August 2015.
Tim Moore, senior economist at Markit, said: “House price sentiment not only rose in May, but moved above the 2016 peak seen as stamp duty changes approached during March. As a result, the balance of UK households reporting a rise in their property value now stands at its highest since August 2014.
“At first sight, the strength of UK house price sentiment in May is surprising given the weaker economic backdrop, expected drop off in buy-to-let transactions this quarter and uncertainties related to the EU referendum.
“However, headwinds to buyer confidence appear to have been offset by favourable undercurrents for house prices elsewhere. In particular, the risks of an impending interest rate rise now seem a more distant prospect and ultra-low mortgages have become more widely available. “Coupled with the perception of a long-term shortfall in housing supply, the latest survey highlights that expectations of rising property values are well entrenched among UK households.”
