‘There is nowhere for house prices to go but down’
The cost-of-living crisis and rising interest rates have started to cool the housing market, as the rate of price growth has fallen to its lowest level this year.
The average house price rose 1pc, or £2,857, in May. This was the slowest rate of growth in 2022, according to mortgage lender Halifax. This is the latest indicator of a wider housing market slowdown, signalling that rising prices have started to tighten household budgets and dampen demand, experts said.
House prices have risen for 11 consecutive months, increasing 10.5pc in the year to May, to a new record average cost of £289,099. However some property types have performed better than others, with buyers paying £10,000 more than they did last year for a flat but an additional £50,000 for a detached house.
Russell Galley, of Halifax, said the current sellers’ market was likely to have peaked. He said: “Mortgage activity has started to come down and, coupled with the inflationary pressures currently exerted on household budgets, it’s likely activity will start to slow.”
Alice Haine, of analyst Bestinvest, said rising mortgage rates and runaway inflation had started to take their toll on the market and many prospective buyers would be forced to delay their purchases.
“With rising house prices, lower disposable incomes and fewer people with the right debt-to-income ratio to qualify for a mortgage, some first-time buyers may delay their entry into the housing market, while existing homeowners may stick with their current home, focusing on a remodel or extension instead,” she said.
Those who made purchases during the Covid crisis could come to regret their decision to move, she added.
Ms Haine said: “Borrowing the maximum possible on a two-year fixed-rate deal to secure a larger home and garden might have seemed like a good idea in the summer of 2020 when interest rates were at the record low of 0.1pc, but with those deals now expiring, homeowners are emerging into a very different mortgage landscape.”
Mortgage rates have jumped to a 13-year high, increasing since the Bank of England signalled it would start raising the Bank Rate late last year.
Properties in Northern Ireland and the South West gained the most in value, with prices rising 15.2pc and 14.5pc respectively. Meanwhile, house price inflation remained in single figures for Scotland, London, and Yorkshire and the Humber.
Graham Cox of Self Employed Mortgage Hub, a broker, said he expected house prices to fall by 5pc this year and possibly further in 2023.
“Property prices are already coming off their record highs and transaction levels are falling. Mortgage costs, fuel, food and energy prices continue to soar with no end in sight. Throw in National Insurance and tax rise, the terrible events unfolding in Ukraine and the autumn energy cap increase and it’s a recipe for economic disaster that we won’t see the full effects of until the winter,” he said.
“There is nowhere for house prices to go but down.”