UK house price growth slows to 1.9 per cent in May
The average price of a UK house cost £286,000 in May, according to new government data, with the figure being £6,0000 up on 12 months ago – but £7,000 below its September peak.
Average UK house prices increased by 1.9 per cent in the 12 months to May 2023, down from a revised 3.2 per cent in April 2023, as the housing market was teetering into further uncertainty ahead of the Bank of England’s rate rise.
On a seasonally-adjusted basis, the average UK house price decreased by 0.4 per cent during the month, following a month-on-month increase of 0.5 per cent in April 2023.
London house prices remained the most expensive of any region in the UK, with an average price of £526,000 in May 2023. In Scotland the average house price for the month of May was £193,000.
“This most comprehensive yet historic house price survey shows clearly the impact of stubbornly high inflation on mortgage rates and the knock-on effect on confidence which is keeping house prices in check,” Jeremy Leaf, north London estate agent and a former RICS residential chairman, said.
“On the ground, appetite remains but worries over how far and how fast repayments will rise is highly relevant. Meanwhile, many sellers are not prepared to reduce to what is clearly a new market ’norm’.
While the housing market was showing signs of recovery in early spring, the central bank’s decision to hike interest rates by 0.5 per cent to cool inflation in June sent high street lenders into a frenzy – increasing the price of mortgage deals.
Today, figures from Moneyfacts show that the average two-year fixed residential mortgage rate today is 6.81 per cent. This is up from an average rate of 6.78 per cent yesterday.
This move shattered buyer confidence, and many sellers have lowered the asking price on their homes in order to secure a sale.
“Given all the rate rises we have had over the past year, downward pressure on house prices was inevitable,” Stuart Crispe, founder at Sunny Avenue, said.
“Even after Wednesday’s better-than-expected inflation data, inflation needs to drop further and the base rate to stabilise or come down before the property market once again starts to rebound.”
He added: “We could see a rise in buy-to-let investors leaving the market, as well as those who cannot afford to keep their homes putting them up for sale. Though the lack of supply will likely prevent a collapse in prices, more buy-to-let properties coming onto the market in particular will put further downward pressure on prices.”
However, news today that inflation has hit its lowest level in over a year (7.9 per cent), may restore confidence in the housing sector.
Investors appear to have cautiously regained their faith in the market, with a number of FTSE 100 housebuilders seeing their share price soar this morning following the announcement.
Barratt Developments shares jumped 6.51 per cent this morning and fellow housebuilder Vistry Group also saw its shares hit 6.49 per cent.
“The housebuilders have been under pressure lately, pricing in the prospect of lingering inflation, further rate hikes from the Bank of England and a squeeze on mortgage holders and the wider property market,” Victoria Scholar, head of investment at Interactive Investor, told City PM
“However today, the sector is reversing some of those losses, rebounding intraday as markets now shift their expectations away from a 50 basis point interest rate hike in August to a more dovish 25 basis point move.”
She added: “Any further indications that inflation is easing, and less tightening is needed would likely support the housebuilders sector.
“However, there’s still a long way to go before UK inflation gets back to two per cent. Further ahead, investors now anticipate that the Bank rate will peak between 5.75 per cent and six per cent by the end of 2023/beginning of 2024, rather than peaking at six per cent.”