Written by Kim Kinnaird, Director, Halifax Mortgages
The slight fall seen in average house prices in July (-0.1%) was offset by a return to growth during August – although the increase (+0.4% month-on-month) was relatively modest compared to the rapid inflation we’ve witnessed in recent times. Over the last year the rate of monthly house price inflation has averaged around +0.9%.
The typical house price reached another record high in August (£294,260) – as it has done in seven out of the eight months so far this year. However, the annual rate of growth dropped to +11.5%, from +11.8% in July, the lowest level in three months.
While house prices have so far proved to be resilient in the face of growing economic uncertainty, 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.
Firstly there is the considerable hit to people’s incomes from the cost-of-living squeeze. The 80% rise in the energy price cap for October will put more pressure on household finances, as will the further increases expected for January and April. At the levels being predicted, this is likely to constrain the amounts that prospective homebuyers can afford to borrow, on top of the adverse impact of higher energy prices on the wider economy.
While government policy intervention may counter some of these impacts, borrowing costs are also likely to continue to rise, as the Bank of England is widely expected to continue raising interest rates into next year.
With house price to income affordability ratios already historically high, a more challenging period for house prices should be expected. However this should be viewed in the context of the exceptional growth witnessed in recent years, with average house prices having increased by more than £30,000 over the last 12 months alone.”
Regions and nations house prices
Wales remains at to the top of the table for annual house price inflation, up by +16.1%, the strongest level of growth since early 2005. This means average prices have risen by £31,246 over the last year, with an average property now costing £224,858.
The South West of England also continues to record a strong rate of annual growth, up by +14.5%, with an average property cost of £313,003.
The rate of annual growth in Northern Ireland eased back further last month to +12.5%, with a typical home now costing £185,505.
Scotland also saw another slowdown in the rate of annual house price inflation, to +9.4% from +9.5%. A Scottish home now costs an average of £204,362, another record high for the nation.
While London has continued to lag behind other nations and regions, the rate of annual house price inflation in London rose again to now stand at +8.8%, its highest level in over six years. With a typical property costing a record £554,718 the capital’s average house price has risen by £44,669 over the last 12 months.