Average UK house price increased over £26,000 but market is cooling

The average UK house price hit a new record high of £271,613 in June but the market is slowing amid the cost of living squeeze and rising interest rates.

The Nationwide report showed the annual rate of house price growth easing back for the third month in a row, to 10.7% from 11.2% in May.

That was despite a 0.3% rise month-on-month, the mortgage lender said, which took the average cost of a property to a new high of £271,613, with average prices increasing by over £26,000 in the past year.

South West overtook Wales as strongest performing region, while London remained weakest.

House prices across the South West jumped 14.7% year-on-year in the last quarter.

It was followed by East Anglia, where annual price growth remained at 14.2%. Wales saw a slowing in annual price growth to 13.4%, from 15.3% in the first quarter.

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Price growth in Northern Ireland was similar to last quarter at 11%. Meanwhile, Scotland saw a 9.5% year-on-year rise in house prices.

London is the weakest performing UK region, with annual price growth in the second quarter slowing to 6% for an average £540,399, from 7.4% previously.

Robert Gardner, Nationwide’s chief economist, said: “There are tentative signs of a slowdown, with the number of mortgages approved for house purchases falling back towards pre-pandemic levels in April and surveyors reporting some softening in new buyer inquiries.

“Nevertheless, the housing market has retained a surprising amount of momentum given the mounting pressure on household budgets from high inflation, which has already driven consumer confidence to a record low.

Gardner said that, at the same time, the stock of homes on the market has remained low, keeping an upward pressure on house prices.

“The market is expected to slow further as pressure on household finances intensifies in the coming quarters, with inflation expected to reach double digits towards the end of the year.

“Moreover, the Bank of England is widely expected to raise interest rates further, which will also exert a cooling impact on the market if this feeds through to mortgage rates.”

The Bank of England has raised the Bank rate five times in a bid to curb some of the inflationary pressures facing the country.

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Myron Jobson, senior personal finance analyst at Interactive Investor, said the current double-digit annual house price growth doesn’t seem sustainable.

“Property prices have gone up faster than wages, creating an affordability squeeze, while mortgage rates have risen to levels we haven’t seen in a while. These factors, as well as the prospect of higher interest rates to rein in runaway inflation, are likely to go some way towards taming frothy housing prices.

“The housing market has already begun to show signs of cooling. Mortgage activity has started to come down, falling back towards pre-pandemic levels in April, and new buyer enquiries has waned – which is indicative of the inflationary pressures currently exerted on household budgets.”

Managing director of HBB Solutions, Chris Hodgkinson, commented: “There’s no doubt that the property market has performed impressively during the pandemic but this rate of growth simply isn’t sustainable in the long-term and we’re now seeing early signs that the winds of change are beginning to pick up.

We’ve already seen mortgage approval levels start to slide and the lagged nature of the transaction process means that it won’t be long before this materialises in the form of both a reduction in transactions and the price paid in the process.”

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said: “We expect house prices to drop by around 2% in the second half of the year, pushing down the year-over-year rate to around 2% by the end of the year.”

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Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “The question is whether we will see prices slow to a crawl, stagnate, or start to drop if we see a recession.

“An awful lot depends on things we don’t yet know – including how high interest rates will go, how deep any recession might be, the impact it could have on jobs, and whether this is serious enough to cause real damage to the property market.”

She added: “The desperate dash for property at a time of rocketing prices may be over.

“Buyers have time to consider whether this is a move they can really afford, and whether they’ll still be happy they made it if prices pull back later in the year.”

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