June 26

Rising Costs Cloud Outlook for UK Mortgage Market


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UK house prices saw a slight dip last month, reflecting the impact of high borrowing costs on the property market. According to the Halifax house price index, the average property price decreased by 0.1% between April and May, bringing the average home value to £288,688. Despite this decline, prices were still 1.5% higher compared to the same period last year.

The slowdown in property price growth coincides with the Bank of England’s decision to keep UK interest rates steady at 5.25%. This marks the sixth consecutive time the Bank has maintained this rate, which is at its highest level in 16 years. The high interest rates have made borrowing more expensive, contributing to the cooling of the housing market.

Higher mortgage rates are making it more difficult for potential buyers to afford new homes, resulting in fewer transactions and softer price growth. Property experts suggest that the market may continue to experience similar trends as long as borrowing costs remain elevated.

Amanda Bryden, the head of mortgages at Halifax, explained that the UK housing market has shown resilience during the spring months. This resilience is largely due to strong wage growth and a slight improvement in economic outlook, which have both helped keep property prices stable. Bryden noted that the average property price hasn’t changed much over the last three months. This period of stability in house prices and interest rates could provide some reassurance to both buyers and sellers.

According to data from Uswitch, the average interest rate for a two-year fixed mortgage this week is 5.89%. For those looking at a five-year fixed deal, the average rate is 5.36%. These rates are important for anyone considering buying or remortgaging a property, as they impact the cost of borrowing.

Bryden added that this relative stability in the market might help restore some confidence among people looking to enter the property market or sell their homes. The consistent interest rates and stable property prices offer a more predictable environment, which can be beneficial for making long-term financial decisions regarding property.

The North West leads the UK in house price growth, with a significant annual increase of 3.8% in May. This rise brings the average house price in the region to £232,258. This steady growth highlights the region’s ongoing appeal to buyers and investors, driven by a combination of economic factors and demand for property.

Northern Ireland continues to perform well, showing an annual house price increase of 3.2% in May, although this is slightly down from the 3.3% growth recorded in April. The robust market in Northern Ireland reflects a stable housing sector, supported by a strong local economy and consistent demand.

Scotland has also seen positive growth, with house prices rising by 1.9% annually. The average price of a property in Scotland now stands at £204,952. This growth indicates a healthy market, with property values continuing to climb, albeit at a slower pace compared to the North West.

In Wales, house prices grew by 0.7% in May, resulting in an average property price of £219,483. While the growth rate is more modest than in other regions, it still reflects a positive trend, suggesting that the Welsh housing market remains stable with ongoing buyer interest.

Eastern England, however, recorded the most significant decline in annual house price growth. The average house price in this region is now £329,853, a decrease of 0.8% from the previous year. This drop indicates some market cooling, potentially influenced by higher mortgage rates and economic uncertainties affecting buyer confidence in the region.

Overall, the UK housing market presents a varied picture with regional differences in growth rates, reflecting local economic conditions and buyer preferences.

London continues to be the region with the highest average house prices, with the typical property now costing £536,821. This marks a slight annual increase of 0.2%, reflecting ongoing demand in the capital despite broader market challenges.

Nathan Emerson, CEO of Propertymark, observed: “The housing market is generally trending upward, with house prices showing annual growth compared to this time last year. However, with a general election on the horizon, there could be a cautious stance from both buyers and sellers. First-time buyers, in particular, may be waiting for potential government support measures. Additionally, many will be watching closely for the Bank of England’s next announcement, which could influence market dynamics.”

Supporting this trend, data from Nationwide revealed that house prices increased in May for the first time in three months, rising by 0.4% after a 0.4% decline in April. This suggests some resilience in the market despite high borrowing costs and economic uncertainties.

Stephen Perkins, managing director at Yellow Brick Mortgages, offered a perspective on the current conditions: “Describing the market as ‘static’ is accurate. House prices are holding steady even amid financial pressures from high base rates. This stability may provide some confidence to potential buyers and sellers, although the broader economic environment remains a significant factor.”

The regional picture shows mixed trends. In the North West, house prices grew by 3.8% annually in May, with the average property now priced at £232,258, making it the strongest performing region in the UK. Northern Ireland followed closely with an annual growth rate of 3.2%, though slightly down from 3.3% in April, indicating continued strength. Here, the average house price stands at £186,373.

Scotland also saw positive movement, with average house prices reaching £204,952, up by 1.9% compared to the previous year. Wales experienced a more modest increase of 0.7%, bringing the average price to £219,483. However, not all regions shared in the growth. Eastern England experienced the most significant decline, with house prices averaging £329,853, down by 0.8% year-on-year, indicating regional variations in market performance.

“The cost of living crisis has eased off and wage growth as proved resilient. If feels like the market is holding its breath, awaiting either a base rate reduction or a new government.”



MORE Property blogs HERE: 

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Buy-to-let Home Insurance UK

Why Are Buy-to-Let Mortgages Interest Only?

Is Buy-to-Let Still Profitable Today?

A Comprehensive Guide to Buy-to-Let Mortgages

First-Time Buyer’s Guide to Buy-to-Let Mortgages


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