UK property: How house prices are changing where you live

·4 min read
Property prices are forecast to cool in the coming months as the cost of living and other economic challenges hit household budgets. Photo: Matt Crossick/ EMPICS Entertainment.
Property prices are forecast to cool in the coming months as the cost of living and other economic challenges hit household budgets. Photo: Matt Crossick/ EMPICS Entertainment

UK house prices have seen stellar growth since the coronavirus pandemic, with the stamp duty tax holiday also playing a role, but the bull run is expected to come to an end.

Surging inflation, aggressive interest rates hikes from the Bank of England (BoE) to stem soaring prices, the cost of living crisis and slow growth are forecast to considerably ease house price growth this year.

Analysts from the Centre for Economics and Business Research (CEBR) said the trend is in line with sharp rises in mortgage rates and a significant squeeze on real incomes.

Read more: New mortgage commitments rise despite cost of living crisis

The associated slowdown in demand is expected to see annual growth rates fall towards zero in the fourth quarter, after which annual price contractions are anticipated.

In 2023, an annual house price contraction of 3.7% is expected. This is compared to the previously forecasted 3.4% contraction, with a peak of average annual contraction of 5.5% forecast in Q2.

As economic challenges are expected to finally catch up with Britain's property market, here's what this means for regional prices.

Chart: Centre for Economic and Business Research
Chart: Centre for Economic and Business Research

What are the economic risks?

Britain's economy is poised to slow again this month as fears of a recession mount. April's 0.3% drop in GDP was the biggest decline since April 2021, according to the Office for National Statistics.

It comes as real wages slumped as incomes fail to keep up with the pace of inflation, and unemployment rises.

Meanwhile, the BoE hiked interest rates for the fifth consecutive time last month, with further hikes expected after inflation hit a 40-year high of 9.1% in May and is forecast to top 11% in October.

The Monetary Policy Committee (MPC) vote to lift rates by 25 basis points took the base rate to 1.25% — the highest level since January 2009.

However, three of the MPC’s nine members voted for an even larger increase of 50%, pointing to the mounting pressure on the central bank to combat rampant inflation.

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CEBR expects Threadneedle Street to increase rates further in each of its three upcoming MPC meetings, bringing the bank rate to 2% by the end of the year.

Experts warn that the sharp cost of living squeeze, and the rise in mortgage rates, could now be dampening the market, with potential house buyers more nervous about taking on debt.

Karen Noye, mortgage expert at Quilter, said: "Throughout the rest of the year, we are likely to see mortgage lending drop as more people are priced out of the market by the rising cost of living and BoE interest rate hikes, as well as being put off by the continuing economic uncertainty."

Image: Centre for Economics Business Research
Image: Centre for Economics Business Research

While the majority of mortgage holders currently pay fixed rates, those reaching the end of their fixed terms, those on variable rates, and those newly buying are set to experience higher borrowing costs as a result of these rate rises.

"By reducing demand, this is set to weigh on price growth in the quarters ahead," CEBR added.

What does this mean for regional house prices where you live?

An intensifying squeeze on household budgets is expected to slow house price growth in the coming months.

Separate Data from different House Price Indexes, including from Zoopla and Nationwide, point to a slight cooling of annual house price growth across the remainder of the second quarter.

The latest data from HM Land Registry’s UK House Price Index (HPI) shows the average UK house price rose by 12.4% in the year to April — the strongest annual price growth rate since the 13.3% recorded in June last year.

April’s uptick was also driven by a low comparison base, according to the CEBR.

"With a brief dip in house prices witnessed following the initially intended, but ultimately postponed, stamp duty holiday deadline in March 2021, April’s annual comparison is subject to an upward base effect," it said.

Read more: UK house prices climb to £294,845 as market shows no signs of cooling

Regionally, the annual house price growth rose across England, Wales and Scotland during the month as all three nations’ growth rates were pushed up by the aforementioned base effects.

Wales and Scotland saw the strongest rates, both at 16.2%, marking the eighth consecutive month in which Wales recorded the (joint) highest growth rate among the three nations.

In England, the annual price growth was the highest in the South West and North West, at 14.1% and 13.3%, respectively.

All nine regions saw an uptick in price growth in April, although CEBR said these growth rates were augmented by base effects.

London had the slowest annual price growth, at 7.9% for the seventeenth consecutive month.

Watch: Will UK house prices ever fall?

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