The cost of living crisis and rising interest rates have started to cool the housing market as the price growth rate has fallen to its lowest level this year.
The average house price rose by 1 piece or £2,857 in May. That was the slowest rate of growth in 2022, according to mortgage lender Halifax. It’s the latest indicator of a broader housing market slowdown and signals that rising prices have started to tighten household budgets and dampen demand, experts said.
House prices have risen for 11 straight months, up 10.5 per cent in the year to May to a new record average of £289,099. However, some property types have fared better than others, with buyers paying £10,000 more than last year for an apartment but an extra £50,000 for a family home.
Russell Galley of Halifax said the current seller’s market has probably peaked. He said: “Mortgage activity has started to slow and coupled with the inflationary pressures currently being placed on household budgets, activity is likely to slow.”
Alice Haine of analyst Bestinvest said rising mortgage rates and runaway inflation had started to take their toll on the market and many would-be buyers would be forced to postpone their purchases.
“With rising home prices, lower disposable incomes, and fewer people with the right debt-to-income ratio to qualify for a mortgage, some first-time homebuyers may delay their entry into the real estate market while existing homeowners may hold on to their current home, and focus instead focus on remodeling or expansion,” she said.
Those who have made purchases during the Covid crisis may regret their decision to move, she added.
Ms Haine said: “In the summer of 2020, when interest rates were at a record low of 0.1 per cent, it might have seemed like a good idea to borrow the maximum possible amount on a two-year fixed-rate contract in order to get a bigger house and garden With those contracts now expiring, homeowners are entering a very different mortgage landscape.”
Mortgage rates are at a 13-year high and have been rising since the Bank of England signaled it would start raising interest rates late last year.
Property in Northern Ireland and the South West appreciated the most, with prices rising 15.2% and 14.5% respectively. Meanwhile, house price inflation remained in single digits for Scotland, London and Yorkshire and the Humber.
Graham Cox of Self Employed Mortgage Hub, a broker, said he expects house prices to fall 5 percent this year and possibly further in 2023.
“Real estate prices have already passed their record highs and transaction numbers are falling. Mortgage costs, fuel, food and energy prices continue to rise with no end in sight. Add to that social security and tax hikes, the terrible events in Ukraine and the energy cap hike in the fall, and it’s a recipe for economic disaster whose full effects we won’t see until the winter,” he said.
“Real estate prices have nowhere to go but down.”