Britain's housing market holds strong despite cost-of-living crisis

The UK housing market remains strong despite the cost of living crisis, with house prices rising for the 12th consecutive month in July.

According to research from the Nationwide Building Society, prices have risen by 0.1% month-on-month meaning the average house price in the UK is now £271,209.

On an annual basis, price growth accelerated slightly to 11% in July, up from 10.7% in June, although bosses expect the market to slow in the coming months as families continue to grapple with rising inflation.

However, the level of growth has varied in different areas of the UK, with the quarterly price change in the South West being 14.7% compared to 6% in London.

The capital is the region with the highest average house price at £540,399, while Scotland has the lowest with an average of £181,422.

Robert Gardner, Nationwide’s chief economist, said: “The housing market has maintained a surprising level of momentum as high inflation put increasing pressure on household budgets, which has already pushed consumer confidence to all-time lows.

‘While there are tentative signs of a slowdown in activity, with a drop in the number of mortgage approvals for home purchases in June, this has yet to impact price growth.

‘Demand continues to be supported by strong labor market conditions, where the unemployment rate remains near a 50-year low and job vacancies are near record highs.

“At the same time, the limited inventory of homes on the market has helped keep upward pressure on house prices.

‘We continue to expect the market to slow down as household budget pressures mount in the coming quarters and inflation is expected to hit double digits towards the end of the year.

‘In addition, the Bank of England is widely expected to continue raising interest rates, which will also have a cooling effect on the market as this feeds through to mortgage rates.’

Mr Gardner said transactions among home movers with a mortgage have slowed more than other sectors.

That likely reflects the recent stamp duty holiday, which ended last year and encouraged movers to bring purchases forward at that time, he said.

He continued: “Mortgage completions from first-time buyers have remained resilient and are now (around) 5% above pre-pandemic levels, despite mounting affordability pressures.

“Indeed, housing price growth has continued to significantly outpace earnings, raising the deposit barrier and combined with higher interest rates, has pushed up mortgage repayments as a percentage of income.

“The number of cash transactions remains high, although their share of activity has remained broadly stable at (around) 35%.

“This is partly a reflection of an aging population (where more people fully own their homes).

“But properties bought for investment purposes, such as a holiday home or a rental apartment, are also an important element of the cash market.

“Buy-to-let purchases with a mortgage also remain higher than before the pandemic.

“Sentiment is likely to be boosted by the fact that rental demand remains strong, with upward pressure on rents, which could encourage landlords to enter the market, particularly if they view property as a hedge against inflation.”

Alice Haine, Personal Finance Analyst at Bestinvest, said that with another Bank of England interest rate hike expected later this week “this should have a dampening effect on the market”.

She continued: “Add to this the tide of challenges ahead – from the surge in energy prices in October, when the energy watchdog raises the cap on bills, to runaway inflation which continues to outpace wage growth – and the pressure on household finances will only intensify, potentially putting even more pressure on the real estate sector.’

Tom Bill, head of UK housing research at Knight Frank, said: “For those wondering how house prices can continue to rise as cost-of-living pressures mount, the answer is that it’s happening for the same reason – a supply chain disruption .’

Nathan Emerson, Managing Director of Propertymark, which represents property and rental agents, said: “The market has been unrelenting over the past two years. Our member agents tell us that they are now starting to see signs of a return to a normal seasonal trend as the market slows down over the summer months.

“But year-on-year price growth is still strong and, despite the rising cost of living, there is every indication this will continue for some time to come as long as it remains cheap to borrow and buyers still outnumber the properties available.’

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, suggested that the continued rise in mortgage rates will lead to a further slowdown in buyer demand.

She said: “The interest rate on a two-year fixed-rate mortgage with an LTV (loan-to-value) of 75% has already risen from 1.57% in December to 2.88% in June – the fastest six-month increase since at least 1995 – and should rise to around 3.1% by the end of the year if the MPC (Bank of England Monetary Policy Committee) delivers the rate hikes markets are currently anticipating.’

Iain McKenzie, chief executive of the Guild of Property Professionals, said: “Over the past month, buyer inquiries have eased off and we are seeing a more balanced selling market which could mean we will be cooling property price growth.

“While homeowners have been able to significantly increase the value of their property, increasing financial pressures from cost-of-living inflation have made many reluctant to top up, and some would-be movers are now choosing to stay put.”