The Nationwide Building Society has this morning published its UK House Price data for January 2011. The Nationwide tends to be the first of the two UK building societies (the other being the Halifax) to produce house price data each month, it is one of the information sources referenced by NAMA’s Long Term Economic Value Regulation and is the source for the UK Residential key market data at the top of this page.
The Nationwide says that the average price of a UK home is now GBP £161,602 (compared with GBP £162,763 in December 2010 and GBP £162,764 at the end of November 2009 – 30th November, 2009 is the Valuation date chosen by NAMA by reference to which it values the Current Market Values of assets underpinning NAMA loans). Prices in the UK are now 13.1% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of January 2011 being GBP £161,602 (or €188,994 at GBP 1 = EUR 1.1695) is only 1.45% below the €191,776 which the Permanent TSB/ESRI said was the average nationally here at the end of December 2010.
With the latest release from Nationwide, UK house prices have fallen by 0.71% since 30th November, 2009, the date chosen by NAMA pursuant to the section 73 of the NAMA Act by reference to which Current Market Values of assets are valued. The NWL Index has declined to 893 meaning that average prices of NAMA property must increase by a weighted average of 12.0% for NAMA to breakeven on a gross basis.
The short-term outlook for UK residential remains flat to modestly negative. Last week saw the release of data which showed a shock 0.5% contraction in UK GDP for Q4, 2010. And in November, the newly created Office for Budgetary Responsibility (OBR) issued a forecast which predicted the UK economy to grow (by reference to GDP) by 2.1% in 2011 and 2.6% in 2012. Unemployment is forecast to peak at 8% in 2011 and property will drop by 2.7% over the next 12 months. Mortgage approvals are dropping off with confidence in the low- and middle-market in the doldrums with reasonable supply (boosted by the abolition of Home Information Packs (similar to our BERs) in June 2010) and anaemic demand dampened by the prospect of public sector job cuts, VAT rises and an €81bn fiscal adjustment. Inflation is running at just over 3% in the UK and there may well be a rise in interest rates in 2011 (the Bank of England base rate is 0.5% and has been at this level for two years since 5th February, 2009).
Yesterday saw the release of information by the UK’s Land Registry for England and Wales which painted a mixed picture for the year just ended. Whilst London saw an annual increase in prices of 6.2%, the North East (including Hull, Newcastle where I know some Irish investors have largish portfolios) at the other end of the scale dropped by 3.3%.
NAMA Wine Lake 
Hi Name Wine Lake
Firstly thank you for a high quality blog which must take up lots of your time.
I just wanted to add a comment on the UK housing situation and the moves of the Bank of England. I have written on my blog several times that I feel that this is going to be a hard year for the UK housing market. Please do not get me wrong it needs a downward adjustment but my fear is that this adjustment could accelerate in 2011 and there is a danger of it becoming something of a rout.
I wrote an article back in December about the Bank of England’s withdrawal of its Special Liquidity Scheme and the impact I feel that withdrawal around £9 billion per month is likely to have on the availability of credit in 2011 and in particular on mortgage finance.
I feel more and more that this move was and is a policy error. We need prices to drift lower rather than fall heavily for quite a few reasons. Not the least is that in my opinion the UK banking sector is not in as good a shape as its share prices imply.
So in conclusion I am more worried than you about the prospect for UK house prices in 2011.
Hi notayesmanseconomics,
Thanks for your comment. In truth UK residential is not likely to have a huge impact on the operation of NAMA and it doesn’t get a lot of comment on here (very rough calculations are that 1/5th of NAMA’s UK assets will be residential and the UK will account for 1/4 of NAMA’s assets overall). So it’s a rare treat to get a comment on the UK housing market.
From this side of the Irish sea, we look at the low rate of new house building in the UK, growth in your population, relatively stable unemployment and, hiccups aside like q4, 2010, a recovering economy. Like Ireland you have government spending cutbacks in store. Your base rate of 0.5% is in line with our own rates set by the ECB but unlike the UK, Irish banks have steadily increased variable rate mortgages despite base rates which have been at 1% for nearly two years. Your inflation rate is noteworthy being 3%+ whilst ours has only just turned slightly positive after more than 18 months of deflation. Being tied to the euro, we are unable to do old fashioned quantitative easing though we have a novel invention whereby the government has printed €31bn of promissory notes which have been shovelled into the banking sector which can then be converted to cash. There have been few forecasts this year but Paddy Power and one local economist have stuck their heads out with a forecast drop of about 10%. Interestingly there is more emphasis here on geographic sectors than in the past.
It was your independent budgetary office that predicted 2.7% drops in 2011. Though I note others like Capital Economics have sharper forecast drops. Somehow, despite the monetary operations I think the outlook is brighter in the UK than here. And I wonder if the old North-South divide will become more prominent with prices increasing in London and the South-East whilst elsewhere prices will drift down?
The UK resi market is updated once a month on here at least and your comments are most welcome.
I do not think one can overlook the importance of London as a magnet for worldwide capital flight. Where is Mubarak Jr.? This obviously shows up in real estate demand. And, the outlook for increased capital (and body) flight is certainly high.
The focus of the article in on how property prices will have to recover for NAMA to break even. I take it the rise will have to be 12%.
But of more importance for the State is how quickly NAMA can turn the assets into cash.
A 12% loss may not be so bad. If you are paying 6% pa on State loans but can sell some properties, even at a loss of 12%, it is still a good deal.
The other big issue therefore is how are NAMA doing in collecting in and disposing of the assets?
Is there date on this. My impression is that they have spent the past two years putting files together, polishing pencils, and paying consultants megabucks to do sums on spreadsheets.
There are three essential questions for NAMA
1. How much money have you collected.
2. How much property have you sold.
3. Prove you are not corrupt-every day-every week.
Hi Tunbrel cart,
If NAMA was wound up today and let’s say could achieve these average prices (given the volume of NAMA assets, firesales would drag prices down but put let’s put that to one side) then NAMA would lose €40bn * 12% = €4.8bn (assuming NAMA has taken over sub €20m loans). The banks which had received €40bn would incur a further 5% loss because their subordinated NAMA debt wouldn’t be paid because NAMA was making a loss so banks would lose an additional €40bn * 5% = €2bn. So NAMA and the banks (which we effectively now own) would lose €6.8bn which is substantial.
But unfortunately if NAMA brought all the property to market today then supply would drag prices down substantially so the €6.8bn could easily be €15bn. Even in these days of bank bailouts costing €75-85bn (if the full €35bn IMF/EU bailout is needed) a further €6.8/€15bn is significant.
Hi Jake and NWL
I agree with you about the Central London price bubble. I live on the edge of it as it happens and the last trade/purchase where I live was in the Spring of 2010 and it was back at the peak price levels of the summer of 2007. I am also aware that private banks are doing a lot of business in large size mortgages in Central London much of which is to foreign buyers.
However whilst UK political security and stability may tempt some the pound has recovered a fair bit against many currencies since its 2007/8 drop and to European buyers 1.18 is a lot higher than the lows of 1.05 versus the Euro. So even central London may not look so cheap.
Elsewhere in the UK I see falls driven by several factors. Firstly previous mortgage deals are ending and newer ones will be on worse terms. Many public-sector workers are getting redundancy notices which will worry them (bizarrely some councils are giving everyone notices) and in general unemployment is likely to rise. Real wages are falling behind inflation.
These do not of themselves cause a rout maybe just a drift lower but the supply of mortgages may be restricted too by the Bank of England move I described above. With the lot together I think that there is a danger of quicker falls. A sort of drip drip drip building up.