ODOS has had another strong month this December as we complete on more homes last week, enabling our new home owners to get settled just in time for XMAS!
It's important that you keep up to date with the housing market if you're thinking of buying or selling a property over the next year.
The average price of a UK home has nearly trebled since the turn of the century. Prices have increased by more than 60% over the last ten years, according to Nationwide building society. But the lender also says prices are falling for the first time in a year.
On the surface, it looks like the main long-term driver has been simple supply and demand: a shortage of housing stock and high demand for properties.
While this is certainly a factor, low interest rates have really been powering the housing market. The ability to borrow cheaply makes it easier for people to afford mortgages.
However, since December 2021 the Bank of England has increased the base rate nine times from its record low of 0.1% in response to soaring inflation. Inflation sat at 10.7% in the year to November, down slightly from a 40-year high of 11.1% in October 2022. The base interest rate now sits at 3.5%.
Higher mortgage rates have made it more expensive to purchase a home, and the housing market has started to take a knock, with prices dipping in recent months.
Further rate rises are expected throughout 2022, which could seriously dampen the housing market because it means mortgage repayments will increase.
The cost of living crisis is likely to be the biggest cause of a slowdown in the housing market. As household budgets come under pressure, fewer people can afford to stretch themselves to buy homes.
It’s thought that some first-time buyers will hold off as they wait to see what happens which could have an impact on the market.
Have house prices dropped?
Growth in average house prices in the UK has been soaring for the past two years. In fact, the average house price has increased by almost £50,000 since August 2020, according to Nationwide building society. However, data across the board is showing that this growth is slowing and even reversing.
Nationwide found annual house prices grew by 4.4% in the year to November, falling from October’s level of 7.2%. It also marks a 1.4% decline in house prices month-on-month.
The 1.4% drop marks the second monthly drop in 15 months. The monthly fall was also the largest since June 2020, at the height of the Covid pandemic.
All in, it takes the average price of a house in the UK down to £263,788. Despite the drop, this is still around a fifth higher than at the start of the pandemic.
“The market has undoubtedly been impacted by the turmoil following the mini-budget, which led to a sharp rise in market interest rates,” said Robert Gardner, Nationwide’s chief economist.
“Higher borrowing costs have added to stretched housing affordability at a time when household finances are already under pressure from high inflation,” he added.
Other data has also indicated that the rate of growth is slowing down in line with rising living costs. According to the Rightmove house price index, there was a 1.3% dip in the average house price between July and August 2022. Yet over the year house prices climbed by 8%.
The most recent figures from Halifax, the UK’s largest mortgage provider, showed a 2.3% fall in prices in November. This marks the third monthly dip in a row and the largest since the 2008 financial crisis.
This reflects a significant drop from earlier this year, with March seeing a monthly increase in house prices of 1.1%, following a 1.7% rise in February.
Meanwhile, annual growth also slowed from 8.3% to 4.7%, a significant drop from June’s high of 12.5%.
The lender – the UK’s largest mortgage provider – has said “it would be foolish to rule out significant annual price drops in the coming months.
“It’s not just that rates are now higher, but buyers have had an unsettling shock, which could have a long-lasting impact on their willingness to take the plunge.”
It spoke up after the average two-year fixed mortgage interest rate rose to 6.55% in October, though this has now cooled to under 6%.
This has seen households paying the greatest portion of their income on mortgage payments since 1989 at a time when the rate of inflation is running near a 40-year high.
The mortgage rate shift reflects a higher base rate of interest – currently at 3.5% – imposed by the Bank of England as part of its bid to tackle the surge in inflation mostly caused by the fallout from Russia’s war in Ukraine.
However, it also pointed to factors supporting prices including the shortage of new homes, strong wage growth and cuts to stamp duty revealed in the government’s mini-budget.
Nationwide, Halifax and Rightmove differ in their house price estimates because the representative properties they track are slightly different.
We have more on how to avoid paying too much for a house.
A crash in the property market has so far seemed unlikely – an abundance of demand and a short supply of houses has led to a continual rise in house prices.
However, while we can’t say for sure what the future holds, recent rises in the UK base interest rate has sparked fears that the market might crash.
Following the government’s September mini-budget, the Bank of England warned it may increase interest rates for the eighth consecutive time. This led to a host of mortgage providers withdrawing deals and hiking rates, pushing up the cost of mortgages across the board.
Now that the Bank of England has raised the base interest rate to 3.5% as expected, these effects could be further amplified.
This, in turn, is expected to lessen demand for housing and cause house prices to fall.
There are additional factors that could put a dampener on the extreme growth seen in recent years, namely the cost of living crisis. Record petrol and energy prices, rising inflation and tax rises mean most households have less disposable income to spend on buying houses.
While annual house price growth has so far remained high across the board, data has already shown house prices falling slightly month on month. If demand slows down and people have smaller deposits, the rate of house price growth could fall further." - The Times