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After growing rapidly throughout January, the rate of growth for UK residential real estate slowed slightly in February, rising just 2.2 per cent across the UK compared to a significant 3.2 per cent growth rate in the first month of the year.

The news comes at the same time as Nationwide has reported a dip in mortgage lending that’s affected the building society’s profits.

Experts have pointed to many reasons for the slowdown in increasing housing prices, one of which is a declining level of consumer confidence in home prices. Consumer confidence in the value of residential real estate has slumped to its lowest level since the Brexit referendum.

Nationwide’s chief economist, Robert Gardner, noted that the rate of growth in housing prices is likely to be affected “in large part by developments in the wider economy and the path of interest rates”.

The decline in housing price growth, which many have stated was unexpected by the residential mortgage lending industry, is the weakest growth in six months, Nationwide claimed in a recent statement.

While many news outlets have compared the decline in price growth in February to the recent 3.2% price surge in January, the slowing of property price growth is even more significant when recent figures are compared to those from last year.

In February of 2017, exactly 12 months ago, average home prices across the UK increased at a rate of 4.5 per cent — more than double last month’s figures. Analysts believe that the slowdown in real estate appreciation is more likely to be part of a long-term trend than a temporary blip.

Unlike other slowdowns in housing appreciation, the direction of home prices could be difficult to predict. Gardner stated that a major factor in the difficulty was the uncertainty regarding Brexit’s negotiation process, which is still taking place.

“Brexit development will remain a key factor” in determining how the housing market performs in the year ahead, Mr Gardner stated. Other factors likely to affect housing market activity include a spending squeeze that’s limiting many household budgets across the UK.

Other figures seem to support the theory that UK home prices may continue to see slower levels of appreciation. According to data from RCIS, first-time buyer enquiries for properties have been declining for 10 consecutive months as of January.

Pantheon Macroeconomics chief UK economist Samuel Tombs has stated that mortgage rates, which are expected to rise in response to the end of the Term Funding Scheme and a change in the availability of wholesale funding, could also have an impact on property prices.

“Broadly flat prices wouldn’t be a disaster for the economy, but they would damage consumers’ confidence and persuade them to raise their saving rate, preventing the upturn in real incomes this year from lifting GDP growth.”

The slowdown in price growth has come after several years of strong residential housing market performance across the country. Throughout 2017, real estate prices rose dramatically in many UK cities, including low-income areas of cities such as Birmingham.

However, the slowdown in appreciation is expected to affect all areas of the country. In London, where a decade-long boom has dramatically increased property prices, home prices in certain areas are projected to fall by around 0.5 per cent.

It’s an interesting situation — both for property owners and first-time buyers — and one that may signal a change in the direction of the housing market across the country.

Elliot Preece

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