July in one line

Nationwide reported annual house price growth of 1.8% in July, down from 2.2% in June. The average UK price was £277,542, a rise of 0.1% on the month. In cash terms the average property gained £58 over four weeks.

The annual rate eased in a month when the monthly index still rose. That combination points to arithmetic rather than to a new decline: strong months from last summer are dropping out of the twelve-month comparison.

Flat is not the same as falling

A market that moves £58 in a month is neither correcting nor compounding. For a leveraged buyer that middle state is workable. The risk in property investment is rarely a slow drift sideways; it is a sharp fall shortly after completion, or a rate reset into a deal with no cover.

Neither of those is what the index is describing. What it is describing is a market where the seller has no momentum to point at during a negotiation.

What it means for property investors

  • Vendors have lost their best argument. At 0.1% a month, no vendor can credibly hold out for next month's price.
  • Your return has to come from income and from the buy price. With capital growth at roughly inflation minus a little, the yield and the discount at purchase are doing all the work. A deal that only clears on an assumed 4% of capital growth has not really been tested.
  • Set the offer off the comparable, not off the index. No valuer will accept a national growth figure as evidence for a specific property. Sold prices on the same street in the last ninety days are the only figure that moves a vendor, and they are public.

Where we are cautious

We are wary of treating a flat index as a floor. The monthly series has been within a whisker of zero in both directions since the spring, and one weak month would turn this headline negative without anything fundamental changing. We continue to underwrite with no capital growth in the first two years, which makes the entry price and the net yield the only two things that have to be right.

The bottom line

Growth eased to 1.8% and the average price barely moved. That is a market handing negotiating power to buyers who can complete, and offering nothing at all to anyone relying on the index to make a thin deal work.