Where next for house prices?

As the UK nears the beginning of a ‘Winter of Discontent’, there are already murmurs about what might happen to house prices due to rising inflation and falling consumer spending power.

Economists are predicting that prices will soften somewhat, with recent surveys indicating cooling demand in some areas. With further interest rate increases on the horizon, there may be falls in some areas.

However, other experts point out that there is still a shortage of homes on the market, and in times of economic stress many people simply defer putting their homes up for sale. This may moderate falls somewhat.

Here is what is happening now, and what might be on the horizon.

The current situation

There are several surveys that purport to show the current state of the housing market. However, they are all lagging indicators, because they show what has been happening in the last few months rather than what is happening now.

However, they can be useful to show direction of travel. In recent weeks we have seen the following:

Government survey showing a 7.8 per cent increase in house prices in the year to June1

The ONS Survey (Office for National Statistics), uses figures from the government’s Land Registry to give an indication of house prices.

As it uses actual sold prices it is very accurate, but also reflects historic activity, especially as it takes a while for transactions to transfer to the Land Registry database.

Recently we have had figures from June, which show that house prices rose 7.8 per cent between June last year and June this year.

That sounds high but is a huge slowdown from figures the month before, which showed that house prices increased by 12.8 per cent between May last year and May this year.

The average price paid for a house rose by one per cent between May and June, compared with 5.7 per cent in the same period last year.

This is partly due to a peak last year caused by the stamp duty holiday, which distorts comparisons, but may also reflect a slowing market.

July figures from Nationwide showing an increase in house price growth

Nationwide building society also produces a house price index from its own lending figures, which has slightly less of a time lag than the Government version.

The most recent2 one showed that average house price growth increased slightly to 11 per cent from 10.7 per cent between June and July, with prices up 0.1 per cent after taking account of seasonal differences in homebuying.

However, Nationwide’s chief economist, Robert Gardner, says that there are “tentative signs of a slowdown” with a dip in the number of mortgage approvals for house purchases in July. However, this has yet to feed through to price growth.

July figures from Halifax showing a fall in house price growth

Halifax’s figures are also derived from the bank’s own lending, so differ slightly from Nationwide’s. Its most recent study showed that although house prices were up 11.8 per cent in a year, they had dropped 0.1 per cent between June and July.

Halifax’s managing director Russell Galley says that leading indicators have suggested a “softening in activity” in the housing market3.

Forecasts for the next few years

With these indicators suggesting lower enthusiasm for house price growth, experts have also been moderating their expectations on where house prices might go in future.

Zoopla, the online property marketplace, forecasts that the rate of growth will fall to five per cent by the end of 2022, and suggested sellers should be realistic when pricing their homes4.

Property experts Savills and Knight Frank say that the current climate will dampen demand but that price growth over the long term will continue. Savills expects house prices to rise by just over 17 per cent over the next five years5.

What can homeowners and prospective homeowners do about this?

Of course, house price forecasts only matter if you need to buy, sell, or borrow against a property soon. If you are planning to stay in your existing home, if your house has risen strongly in value, it may be that the equity has tipped you into a better lending bracket for your mortgage.

Now might be a good time to take advantage of this by remortgaging onto a more advantageous rate, especially if prices are due to soften and interest rates to rise.

If you are planning to buy a property for the first time, a softening of house prices could put you in a stronger position. Ensuring you also have a mortgage agreed in principle with a lender will make you an even more attractive proposition to sellers and allow you to negotiate on price.

If you are looking to sell a property, you need to be aware that the market is softening and price realistically. Ensuring you know what customers are looking for in a property at present will also help, allowing you to ensure your property is as attractive as possible.

1 https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/june2022
2 https://www.nationwidehousepriceindex.co.uk/reports/annual-house-price-growth-stays-in-double-digits-as-july-sees-twelfth-successive-monthly-increase 
3 https://www.halifax.co.uk/assets/pdf/july-2022-halifax-house-price-index.pdf 
4 https://www.telegraph.co.uk/property/uk/house-prices-will-slow-sellers-become-realistic/ 
5 https://www.building.co.uk/news/interest-rate-hike-to-175-could-slow-housing-market/5118681.article