As it is one of our national obsessions, we always have a surfeit of data on UK house prices, however there is likely to be an even closer degree of scrutiny on that data over the coming months.
There are many reasons for this, not least the first hints coming through that rising inflation, rising interest rates, and a potential recession on the horizon, are already beginning to have their impacts on demand, activity and ultimately house prices.
Ours is a country that doesn’t need asking twice to speculate on where house prices might be heading, and with so much of our ‘wealth’ tied up in housing equity – and with it being used increasingly to fund other aspects of life – there is understandable interest about what might be coming over the horizon.
In the two and a half years since the pandemic, house prices have appeared to defy any sort of pressure that might have been brought to bear on them.
We’re all acutely aware of the incredible demand for purchasing that has driven the market since then which, coupled with relatively low levels of both new-build and second-hand property supply, has meant prices have continued on their upward trajectory.
However, the big question is, given we are in a somewhat different territory right now, will this result in a big drop in prices, or as I tend to think, are we more likely to see a drop-off from the big increases of the past couple of years, back to a point where lower, single-digit rises become the norm?
The most recent statistics seem to suggest the latter, but it is very early days yet and we are not going to see the full extent of any demand dampening until later in the year, and into 2023.
However, ONS statistics out just this week reveal that UK house prices rose 7.8% year-on-year in June, down from the 12.8% recorded in May.
But, and this is important to remember when comparing 2022 with 2021, the market was still working its way through the stamp duty holiday back then, and the obvious and meaningful boost this gave to demand and activity.
2021 was not a ‘normal’ year by any stretch of the imagination in terms of transactions/activity/demand, and while we might also say that 2022 is not ‘normal’ either, even with the pressures being brought to bear, it is likely to look more like non-stamp duty holiday years.
The other important point to remember here, particularly if there is any sort of rush to suggest a ‘house price crash’ is coming, is that – according to the ONS figures – average house prices were still £20k more in June this year than in the same month in 2021.
That’s a significant uplift over a relatively short period of time, and one that you wouldn’t anticipate to continue in any economic cycle let alone the one we appear to be entering into.
We’re all aware that double-digit inflation is not sustainable and we appear to be moving to a point where we will see lower single-digit rises as the new norm. Plus, of course, let’s not think that we have a ‘uniform’ housing market in this country; it is very regionalised and different areas will react differently, depending on supply and demand in these locales.
It also looks like we are starting to see a more realistic view of pricing and valuations taken by sellers. The Rightmove asking prices index revealed a drop in the average UK asking price in August, down by 1.3% from July, and the first time a fall has been the result this year.
Again, as Rightmove point out, this is a return to something of a seasonal norm after a marketplace which defied historical seasonal precedents for two years, and this is in keeping with the greater pressures being brought to bear on household budgets, plus the increase in interest rates, which may be making those looking to purchase/move think again.
Plus of course, with the cost of borrowing/living on the up, borrower demographics such as first-time buyers are going to need to meet higher affordability standards, which could make securing the finance they need to purchase more difficult.
As mentioned, it is a combination of factors which are likely to bring that downward house price pressure, but my view is that with supply still constrained, and more purchasers than sellers, price inflation will fall off its most recent peaks, but not at a rapid rate.
For advisers, this will be good news, as their services will remain very much in demand in a highly changeable mortgage market, plus we anticipate that the remortgage market will continue to strengthen, bringing all the traditional advice opportunities that this sector brings. This is not a market to be fearful of, whatever might happen to house prices.
Mark Snape is chief executive officer of Broker Conveyancing
