UK Housing: A powerful restraint for rates – Nomura

George Buckley, Research Analyst at Nomura, notes that the UK house price inflation is slowing according to most measures.

Key Quotes

“London continues to outperform but house price inflation in and around the capital has weakened the most over the past year, possibly reflecting Brexit uncertainty and the future of the financial industry outside the EU. Sterling has provided an important offset, having fallen by some 40% against the US dollar over the past decade and making London real estate look reasonably priced to some overseas investors.”

“Domestically, however, the capital’s number one position in the price/income rankings has become even more distant from its regional rivals. We can measure affordability of the UK housing market in a number of ways. The repayment/income ratio (our favoured methodology) is broadly in line with its long-run average as falling mortgage interest rates have been offset by higher house prices over time (the recapitalisation effect). That is no reason to be complacent, however. High household debt created by the interaction of low rates and rising house prices means this affordability multiple has never been as sensitive to rising interest rates as it is currently. It represents a powerful motivation for caution from the Bank of England in raising interest rates, when the time eventually comes.”