Homeowners expect UK house prices to rise

Households expect the sharpest increase in prices over next 12 months than at any time since January 2010

Households perceive that the value of their property rose over the last month at the fastest rate since the index began in early 2009

Price expectations rise to record in London, while households in Wales and North East expect the most modest rise in prices

Those aged between 45 and 54 are most optimistic that prices will rise over the year

Change in current house prices

Households perceived that the value of their homes rose in September, for the sixth consecutive month, according to the House Price Sentiment Index (HPSI) from Knight Frank and Markit.

More than 21% of the 1,500 households surveyed across the UK said that the value of their home had risen over the last month, while 5.7% said the value had fallen, giving a HPSI reading of 57.9 (see figure 1).

Any figure over 50 indicates that prices are rising. The higher the figure, the stronger the increase. Any figure under 50 indicates that prices are falling.

This is up from August’s reading of 55.3, and marks the highest reading since the index began in early 2009. On the smoother three-month rolling average, the reading has risen to 56.7 in the three months to September, up from 52 in the previous quarter.

A lead indicator

Since the inception of the HPSI, the index has been a clear lead indicator for house price trends. Figure 3 shows that the index moves ahead of mainstream house price indices, confirming the advantage of an opinion‐based survey which provides a current view on household sentiment, rather than historic evidence from transactions or mortgage market evidence.

While households in every region perceived that the value of their home had increased, the rate of the increases varied. Households in the North East, who in August reported that the value of their home had fallen, are now reporting only modest rises (53.9). In contrast, households in London (67.0) and the South East (61.0) reported the biggest increases.

Outlook for house prices

The future HPSI, which measures what households think will happen to the value of their property over the next year, rose again in September to a its highest since January 2010, reversing the slight dip seen in August.
On the smoother three-month average basis, the future HPSI reading was 68.2, the highest level since the index began, up from 63.1 in the previous three-month period.

Regional outlook

Respondents in all regions expect the value of their property to rise over the next 12 months, but there are significant differences between many regions in the North and South. Those in London (80.1) and the South East (71.4) expect the biggest rise in prices, while households in Wales (64.3) and the North East (64.4) anticipate the most modest increase in values.

Mortgage borrowers are the most confident that prices will rise over the next year (75.8), followed by those who own their home outright (74.6). Those who are renting are the more downbeat about the future movement in house prices (55.6).

Those aged between 45 and 54 (75.7) expect the biggest increase in the value of their home over the next year, followed by those aged over 55 (73.1). In contrast, those aged 18-24 (59.1) are expecting more moderate price rises.

This ‘age-gap’ is also mirrored in earnings data, with the highest earners (earning more than £57,800 a year) expecting the largest increases in prices over the next 12 months, with a reading of 79.9, although this is down from the record high of 81.1 seen in July.