By The average UK house price experienced a slight fall in September (-0.1%), the second marginal decrease over the past three months.
The cost of a typical home edged down a little to £293,835 from the previous month’s record high (£293,992).
The pace of annual growth also slowed for the third month in a row, to +9.9% from +11.4%, returning to single-digits for the first time since January.
The events of the last few weeks have led to greater economic uncertainty, however in reality house prices have been largely flat since June, up by around £250.
This compares to a rise of more than £10,000 during the previous quarter, suggesting the housing market may have already entered a more sustained period of slower growth.
Predicting what happens next means making sense of the many variables now at play, and the housing market has consistently defied expectations in recent times.
While stamp duty cuts, the short supply of homes for sale and a strong labour market all support house prices, the prospect of interest rates continuing to rise sharply amid the cost of living squeeze, plus the impact in recent weeks of higher mortgage borrowing costs on affordability, are likely to exert more significant downward pressure on house prices in the months ahead.
This will undoubtedly be a cause of some concern for homeowners, but the unprecedented rate of property price inflation we’ve seen in recent years has been far above the historic average.
It’s important to look at slower growth in this context – since the start of the pandemic average property values have risen by around +23% (almost £55,000) with detached house prices up by more than £100,000 over the same period, said Kim Kinnaird, Director, Halifax Mortgages.
- Average house price: £293,835
- Monthly change: -0.1%
- Quarterly change: +1.3%
- Annual change: +9.9%
There are now four UK nations and regions which have seen annual house price inflation fall to single digit levels: Eastern England, Greater London, the North East and Scotland.
Perhaps more notably, 11 out of 12 areas recorded slower growth than in August (the exception being the North East).
Wales remains at to the top of the table for annual house price inflation with a rate of +14.8%, down from +15.8% in the previous month, and an average property cost of £224,490.
The West Midlands has now overtaken the South West to record the strongest rate of annual growth in England, with house prices rising by +13.3% over the last year, down slightly from +13.5% in August.
In cash terms prices have risen by £30,000 over that period, with an average property now costing £255,822.
The pace of annual house price growth in Northern Ireland eased back further last month to +10.9% from +12.5%, with a typical home now costing £184,570.
Scotland also saw a further slowdown in the rate of annual house price inflation, to +8.5% from +9.3%.
A Scottish home now costs an average of £204,305, largely unchanged from the previous month.
London still has the slowest rate of annual growth amongst the UK nations and regions, with house prices rising by +8.1% over the last year.
Though with a typical home costing £553,849 the capital’s average property price remains by far the most expensive in the country.
HMRC monthly property transactions data shows UK home sales increased in August 2022.
UK seasonally adjusted (SA) residential transactions in August 2022 were 104,980 – up by 1.1% from July’s figure of 103,880 (up 4.4% on a non-SA basis).
Quarterly SA transactions (June-August 2022) were approximately 4.2% lower than the preceding three months (March 2022 – May 2022).
Year-on-year SA transactions were 7.6% higher than August 2021 (9.7% higher on a non-SA basis). (Source: HMRC)
Latest Bank of England figures show the number of mortgages approved to finance house purchases increased in August 2022, by 16.6% to 74,340.
Year-on-year the August figure was 1.7% above August 2021. (Source: Bank of England, seasonally-adjusted figures)
The latest RICS Residential Market Survey in August showed a continued downward trend in demand and sales.
The net balance score for new buying enquiries was -39%, compared to -26% previously, the fourth consecutive month in negative territory.
Agreed sales have a net balance of -22% (-13% previously) and new instructions returned a net balance score of -15% (previously -6%). (Source: Royal Institution of Chartered Surveyors’ (RICS) monthly report)
Tom Bill, head of UK residential research at Knight Frank comments:
“It’s a fairly safe bet that UK house prices have now peaked.
The impact of rising mortgage rates will begin to hit demand and spending power in coming months, which we believe will lead to a fall of 10% over the next two years for UK prices.
We may see mortgage rates fall to some extent if financial markets become more reassured by the government’s economic plan but the events of the last fortnight have been a reminder that the era of ultra-low rates is coming to an end.”
Tomer Aboody, director of property lender MT Finance, comments:
“Where demand outstrips supply and borrowing is cheap, people will stretch themselves to buy.
That’s what we’ve been seeing over the past couple of years, pushing property prices to new highs.
However, rates are rising, with some predicting they will hit six per cent.
While nobody knows for sure whether that will come to pass, rates could stabilise around 4 per cent over the next couple of years, meaning those coming to the end two or five-year fix could find their mortgage payments double.
That will be a big hit to absorb in the family finances.
There are hard times ahead and many people may have to downsize because they can’t afford the home they bought when interest rates were at rock-bottom.
Stamp duty reductions targeted at those who need to sell and find something smaller would make a lot of sense.”
Jeremy Leaf north London estate agent and a former RICS residential chairman, comments:
“New buyers are pausing for breath while they consider the likely pace and size of future interest rate hikes, so activity is reducing.
The question is whether worries about rising mortgage payments outweigh the benefits of the recent stamp duty reduction, particularly for first-time buyers.
The mini Budget sparked a chain reaction of unintended consequences raising buyer concerns that any savings in stamp duty and other taxes would be more than offset by mortgage rates rising much more quickly and higher than expected.”
Avinav Nigam, co-founder of real estate investment platform, IMMO, says:
“The slowdown in house price growth for September was expected as higher interest rates in May and June kicked in, which feed through to transactions data now due to the time lag of conveyancing.
We are seeing property listings falling by 15 to 20 per cent in some parts of the UK, as uncertainty encourages property owners to delay transaction decisions.
The rapid pace of growth we have seen in recent years is coming to an end, partly due to recent interest rate hikes by the Bank of England and the crash of the pound following the government’s mini budget.
It’s predicted that house prices could correct by as much as 7 to 10 per cent in coming months.
However, we don’t expect a house price growth reversal to improve the affordability of housing much due to fast rising interest rates.
Mortgage lenders are starting to require consumers prove they can afford 7 per cent interest rates, as an indication of where rates could go.
As it becomes harder and more expensive to buy, we will see consumer demand shifting even more towards renting.
The trouble is that the supply of rental housing is also falling.
There’s a growing need for a professional provider to offer safe, quality and affordable rental housing for the UK.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, says:
“General lack of supply continued to drive price increases in September, while the weak pound stimulated investment in London, although there are signs that the market is now slowing.
While the turmoil of the past couple of weeks will go down in the history books, the money markets seem to have settled a little.
More clarity from the government supported by data from the Office for Budget Responsibility will help us get back to a normal functioning market where all lenders can offer a full range of mortgage products.
It is important to reiterate that the mortgage market is still open for business.
Pricing is more expensive than it was but there are plenty of innovative products available that can help first-time buyers boost their deposit and/or affordability, making that dream of buying their first property more within reach than they may think.
Speaking to an independent mortgage broker will help buyers navigate the options available, finding a mortgage suitable for their requirements.”
Tom Brown, Managing Director of Real Estate at Ingenious comments:
“Recent economic announcements and developments are beginning to be reflected in data.
We are seeing a slowdown in the market and the number of mortgages approved for house purchase falling as well as a decline in new buyer enquiries.
There are a number of factors at play here including the escalating cost of living crises, but there will certainly be some very unwelcome additional mortgage costs for owner occupiers and investors throughout 2023 and beyond.
Nationally there continues to be a significant shortage of housing stock across many locations and markets.
And as such, we would expect any related weaker demand from owner occupiers to be balanced by higher demand from renters.
Whilst interest rates and inflation present an ongoing threat to the wider economy, we see UK residential property markets remaining robust, resilient and performing well.
The picture is not uniform across the country and all price points, however, requiring expertise to interpret the headline numbers.
When analysing residential opportunities, it is key to understand the subsectors and regions in which they are located as it can be quite misleading to look at the market too broadly.
At Ingenious, we blend this market expertise with the ability to provide flexible, cost effective financing solutions for our clients by sourcing residential opportunities from across the UK based solely on individual merit.”
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