House prices rose by just 2.6 per cent last year, the smallest rise in any year since 2012, new analysis shows.
The average price of a UK home stood at £211,156 in December, after just a 0.6 per cent month-on-month increase.
London witnessed the first annual fall in house prices in eight years, but still remains the least affordable region for buyers – and it’s actually more expensive than it was just before the financial crash, according to the figures from Nationwide.
The UK capital saw prices fall by 0.5 per cent in the year to December.
2017 ‘shift’: Rates of house price growth in the South moderated towards those in the rest of the country, Nationwide said
The building society said that 2017 ‘saw the beginnings of a shift’, as rates of price growth in the South moderated towards those in the rest of the country.
London’s house price decline is the first since 2009 and makes it the worst performing region for the first time since 2004, although it is still the most expensive region with prices averaging £470,922.
The decline comes after years or worsening affordability in the capital, which has priced increasing numbers of aspiring buyers out of the market.
Robert Gardner, chief economist at Nationwide, said that the variations of affordability across UK regions had increased over the past decade.
‘Affordability has improved in Wales, Scotland and the North of England, but the most marked improvement has been in Northern Ireland. This is largely due to the significant correction in house prices in Northern Ireland, which are still around 40 per cent lower than in 2007,’ he said.
‘Meanwhile in London and the South East, affordability has become even more challenging, with more people priced out of the market or needing to borrow a greater multiple of their income.’
Variations: Homes in London and the South East are less affordable now than decade ago
Nationwide used regional income data to calculate where in the income distribution a prospective purchaser would lie if they were purchasing the typical first time buyer property in each region, with a 20 per cent deposit and borrowing four times their single income.
It said that the picture that emerges is one where the ‘typical buyer’ moves up the income spectrum as you move from the North to the South of the country.
In Scotland and the North of England, this buyer would lie in the 30th income percentile, while in the South East they would be at the 80th percentile and above the 90th percentile in London.
Nationwide also found that saving for a deposit remained a tough quest for most first-time buyers. Again, those wanting to get on the property ladder in London face the biggest struggle compared to the rest of the country.
A 20 per cent deposit in London is now in excess of £80,000, which is about £30,000 higher than a decade ago and by far the highest in the country.
Furthermore, while in most regions it would take about eight years to save for a deposit, this rises to nine years in the South East and to nearly ten years in London, even though the prospective typical buyer in the capital is in the top 10 per cent of the income distribution.
Jonathan Harris, director of mortgage broker Anderson Harris, said: ‘The majority of first-time buyers who come to us have some sort of financial assistance from the Bank of Mum and Dad.
House deposit: Deposits in London are about £30,000 more expensive than a decade ago
‘Getting the deposit together is still the biggest challenge for most first-time buyers and even a slowdown in property price growth is not enough to make the difference between being able to get on the property ladder or not, particularly in London.
‘With Nationwide calculating that it would take the typical buyer around eight years to save for a deposit in most regions, rising to nearly a decade in London, that is a lot of saving that needs to be done, and may seem insurmountable for those also juggling higher living costs, poor savings rates and limited salary increases.’
Looking at regional house prices, Nationwide found that the strongest-performing region was the West Midlands, with prices up by 5.2 per cent annually, followed by the South West at 4.8 per cent.
In most regions it would take about 8 years to save for a deposit, but in London it’s more
An increase of 3.3 per cent was seen in Wales, with 2.6 per cent in Scotland and 2 per cent in Northern Ireland.
Gardner said subdued economic activity and an ongoing squeeze on household budgets is likely to exert a modest drag on housing market activity and price growth in 2018.
He said: ‘Overall, we expect house prices to record a marginal gain of around one per cent in 2018.
‘Over the longer term, once the economy regains momentum, we expect house prices to rise broadly in line with earnings.’