With the cost-of-living crises starting to take hold and interest rates on the climb, it will come as no shock to hear that house prices in August rose to an average price of £294,260.
Whilst the rate of annual growth did slow last month, Halifax, the largest lender in the UK, warned of a “more challenging period” in the near future.
The average price of a home hit £294,260 last month, making it 0.4% more than July and another record high according to Halifax. They went on to say that this was “fairly modest” when compared to the rapid house price inflation that we have been seeing in recent times where the average house price increase monthly has been 0.9%.
This increase in house prices has marked a return to growth after they fell in July for the first time in more than a year. When the annual rate of house prices dropped in July it fell from 11.8% to 11.5%.
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Rising Interest Rates
The Bank of England has also announced its biggest increase in interest rates in 27 years in August, taking the UK base rate up to a 13-year high of 1.75%. This was done in an attempt to curb inflation as gas prices rose in the UK. Interest rates will be reassessed in mid-September by the bank’s monetary policy committee, but it is expected to continue raising rates into the next year.
Kim Kinnaird, the director of Halifax mortgages said that “House prices have so far proved to be resilient in the face of growing economic uncertainty.”
She went on to say that “Industry surveys point towards cooling expectations across the majority of UK regions, as buyer demand eases, and other forward-looking indicators also imply a likely slowdown in market activity. With house price to income affordability ratios already historically high, a more challenging period for house prices should be expected.”
Further evidence of a “more challenging period” ahead comes from the country’s biggest housing developer, Barratt Developments. They said a slowdown in the market is coming as the number of homes reserved each week until the end of August had fallen below the level of a year earlier and was lower now than it was before the COVID-19 pandemic.
Effects On The Housing Market
Increasing pressure on household finances as a result of the rises in the energy price cap will limit the amount that would be buyers will be able to afford to borrow.
Barratt Developments released their annual results to their investors this week and said the “heightened macroeconomic uncertainty” combined with the limited supply of homes meant that they were expecting house growth to moderate.
This news came only a day after Berkeley, a London-focused developer, announced that they were also adapting their behavior in anticipation of the worsening economic conditions, stating that they would only be buying more land ‘very selectively’.
What Does It Mean?
We spoke to Karl McArdle and Jonathan Christie, joint CEO of The Property Buying Company about their thoughts on the warning issued. Karl McArdle said “I think that we will see a slowdown. The reason being is there is a 7% interest rise coming later in the year to curb inflation which will in turn make it more challenging to get a mortgage.”
He continued “Buy-to-let investment may be pushed out of the market. Capital growth interest paired with the ending of tax relief, it means that a lot of investors will be looking to dispose of rental stock, pushing more property to the market resulting in overflow.”
Mr McArdle went on to say “We are already seeing signs of a slowdown. I doubt we will see a crash like 2007/2008. It will most likely be a 20% slowdown after the covid highs of property sales.”