Property Market Monitor: May

Data from the Nationwide House Price Index shows that UK house price growth was gaining strong momentum before the pandemic struck in March, and that the growth carried out into April despite the scale of the full lockdown. Indeed, UK house prices continued their ascent and climbed by 3.7% year-on-year in April, up from 3.0% year-on-year in March. This was the strongest annual growth in over three years (see chart of the month), although it’s important to note that the impact of the pandemic is not fully captured in these figures (see below). The cumulative growth during the first four months of this year to 2.7% compared to last year.

However, monthly data shows that in April, UK house prices grew slightly less than they did in March: 0.7% month-on-month in April compared to 0.8% in March.

Chart of the month: UK house price year % change

Picture 1

Source: Nationwide House Price Index

Market Commentary

  • The Nationwide House Price Index shows that annual house price growth continued to edge up in April despite of the full-scale of the Covid19-related lockdown. Prices rose by 0.7% month-on-month in April, the second-strongest rate for 28 months, yet slightly lower than the 0.8% month-on-month growth seen in March. This marks the seventh consecutive month where prices rose month-on-month and is the longest period of sustained year-on-year price growth over the past five years.
  • In the first four months of 2020, before the pandemic struck, the housing market had been steadily gathering momentum. Indeed, the cumulative growth during the first four months of this year was 2.7% compared to last year. Activity levels and price growth were edging up thanks to continued robust labour market conditions, low borrowing costs and a more stable political backdrop following the general election in December 2019 and the end of Brexit-related uncertainties. Interestingly, the first-time buyer affordability index improved across all the UK regions (Figure 1).
  • However, it is important to note that the impact of the pandemic is not fully captured in April’s data because the Nationwide House Price Index is constructed using mortgage approval data, and there is a lag between mortgage applications being submitted and approved. Therefore, the medium-term outlook for the UK housing market remains highly uncertain at this point and dependent on the wider economic performance. We are likely to see the full impact of the lockdown over the next few months as housing market activity effectively ground to a halt in April as a result of the measures implemented to control the spread of the virus.

Figure 1: First time buyer affordability measure (last data Q4 2019)

(Mortgage payments as % of mean take home pay)       

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Figure 2: Q1 2020 First time buyer house price to earnings ratios

Picture 3

Source: Nationwide House Price Index

Our underwriting team at Blend Network remain very busy assessing deals to ensure we continue lending to experienced property developers who come to us with a solid project, an enviable track record and a strong exit strategy. We know you are hungry for more deals. A recent article in last week’s The Economist titled ‘A dangerous gap[1] summed up the recent market sentiment whereby equity markets have got out of whack with the real economy and investors are concerned that market will at some point see a correction. Therefore, many investors we speak to are looking for other places to invest outside the equity market and see fixed-return property-secured loans as an attractive option. So, keep an eye for new loans coming at www.blendnetwork.com.

[1] The Economist, A dangerous Gap

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