When will house prices
Currently the market is overheated. Property prices have increased by
an average of 11% over a year. This makes it increasingly difficult for
first-time buyers to get a foot on that elusive first rung of the property
In this article we explain:
The average UK house price rose by £25,000 in the
year to August, says the ONS
Why are UK house
prices so high?
The average price of a UK home has nearly trebled
since the turn of the century.
On the surface, it looks like the main long-term
driver has been simple supply and demand: a shortage of housing stock compared
to high demand for properties. While this is a factor, the Bank of England says
its record-low interest rates have really been powering the housing market.
Rates have been at rock bottom for more than a
decade and were at a record low of 0.1%. The Bank of England has increased the
base rate four times since December in response to soaring inflation and it is
currently at 1%. However, it’s still relatively cheap to borrow money to buy a
home so the housing market hasn’t been affected yet. But , which
could dampen the housing market as it means mortgage repayments will increase.
The cost-of-living crisis is likely to be the
biggest cause of a slowdown in the housing market. As household budgets come
under pressure, fewer people can afford to stretch themselves to buy homes.
It’s through that some first-time buyers could hold
off as they wait to see what happens to the market.
Since the onset of the Covid crisis, low interest
rates have been joined by three other important factors in driving house price
But what is the trajectory from here – will house
prices in the UK
Growth in average house prices in the UK gathered
pace in the second half of 2020, a trend that has continued throughout 2021 and
into this year. It had been expected that the end of the stamp duty holiday and
furlough in October 2021 would result in less demand for house purchases, but
that has not been the case. In March 2022 UK house prices grew at the fastest
pace since 2004. However, growth has since decreased somewhat. Data from
Nationwide building society has shown an annual increase of 12.1% in April and
11.2% in May, indicating a slowdown. Nationwide says the price of an average
home is now £269,914. This is more than a fifth higher than at the start of the
pandemic, or around £30,000 higher than May 2021. Meanwhile mortgage lender
Halifax has also confirmed that house prices appear to be slowing. It says the
average house price was £289,099 in May, 10.5% higher than a year ago. When
looking at monthly data, prices increased 1% between April and May. Nationwide
and Halifax differ in their house price estimates because the representative
properties they track are slightly different.
What are the
There are a number of regional variations when it
comes to house prices, and some areas remain highly competitive.
- House price growth is slowest in London
- But prices in the capital are still the highest in the UK at almost
£520,000 – almost double the UK average
- Wales is growing faster than any other region or area in the UK, with
growth of more than 15% year-on-year
Meanwhile prices of large, family homes are growing
faster than flats. Prices for detached and semi-detached houses have risen 12%
over the past year, compared to 7% growth for flats, said Halifax.
Is there a greater
demand for rural locations?
With working from home likely to be a more
permanent part of many people’s lives, demand for properties outside cities and
commuter belts has jumped.
House prices in some hotspots have risen at three
times the national rate. These include places like:
- Conwy in North Wales
- North Devon
- Richmondshire in the Yorkshire Dales
Will house prices
crash in 2022?
While we can’t say for sure what the future holds
for the UK housing market, a crash seems very unlikely. This is because there
is still plenty of demand and a short supply of houses, which has driven up
house prices for years. However, there are a few factors that could put a
dampener on the recent spectacular growth, namely the . Record petrol and
energy prices, alongside and mean most households have less disposable
income to spend on buying houses. If demand slows down then the rate of house
price growth could also fall.
So, while a crash seems unlikely, the squeeze on
household finances as a result of the cost-of-living crisis means we could see
a significant slowdown in house price growth as the year goes on.
Given the continued “race for space”, many housing
market predictions remain bullish:
- Hamptons house price forecast predicts a rise of 3.5% each year
between 2022 and 2024
- Lloyds Banking Group expect house prices to maintain their current
strong levels over the next year, but growth to be much flatter through
2022 at around 1%
- Property consultancy Cluttons suggest that in some parts of London,
prices could fall by as much as 10% next year while Foxtons predict growth
of 1 to 3% in the capital
In the the property market is expected to continue
its upward trend. However, high inflation will push interest rates up which
will slow the housing market down by the end of the year and into 2023. Analysis
from Capital Economics predicts that the Bank of England base rate will peak at
about 3% in the second half of 2023, in turn pushing average mortgage rates to
3.6%. While still historically low, that is more than double the 1.6% rate
recorded at the end of 2021. Based on this data, Capital Economics has forecast
house prices to rise throughout 2022, before falling by 5% in 2023.
Russell Galley, managing director of Halifax, said
the prospect of increasing pressure on households’ finances could cause growth
“The headwinds facing the wider economy cannot be
ignored. With interest rates on the rise and inflation further squeezing
household budgets, it remains likely that the rate of house price growth will
slow by the end of this year.”
Times Money Mentor
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