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House Prices See Their Biggest Monthly Rise for More Than a Year

House prices have shown signs of a modest rebound, ending a six-month decline. However, experts remain cautious about the direction of the market.

After several months of consecutive decline, UK house prices seem to be making a modest recovery. In October, the average property price rose to £281,974, marking a 1.1% increase from the previous month. This uptick of almost £3,000 is the first increase in prices since March. While this may suggest a potential shift in the market, experts remain cautious about the overall stability of the housing sector.

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The Supply and Demand Dilemma

Kim Kinnaird, the director of Halifax Mortgages, says that this rise in prices may not necessarily be a result of increased buyer demand. Instead, it appears to be driven by a shortage of homes for sale as prospective sellers are cautious. This imbalance between supply and demand has temporarily boosted prices but doesn’t necessarily reflect a strong and sustainable market.

Kinnaird further outlines the challenges that potential buyers continue to face, including higher interest rates and affordability pressures, despite income growth due to wage rises.

Jeremy Leaf, a north London estate agent, shares this belief, cautioning against excessive optimism and suggesting that major improvement in the market may not occur until early next year.

Regional Differences Continue

While the national average indicates a slight increase in house prices, regional disparities persist. South-east England continues to experience the most significant annual decline in house prices, down 6%. In contrast, London, despite a 4.6% decrease over the last year, still boasts the highest average house price in the UK at £524,057. Scotland, on the other hand, saw a marginal 0.2% annual decrease in prices, with an average of £202,608.

The Bank of England’s decision to keep interest rates unchanged at 5.25%, the highest level since the 2008 financial crisis, has impacted mortgage costs. Modest reductions in mortgage rates have been observed, offering some respite to potential buyers. However, the central bank’s warning of a looming economic recession and a prolonged period of high-interest rates suggests that challenges in the housing market may persist.

The Role of First-Time Buyers and Housebuilders

Despite the broader challenges in the housing market, first-time buyers have managed to hold their ground relatively well. Prices for this segment are down 2.4% year on year, a smaller decline than the overall market’s 3.2% drop over the past year. This resilience is partly attributed to the desire of renters to escape steep rent increases, driving demand in the first-time buyer market.

Housebuilders have responded to slowing demand by constructing fewer homes, which has, in turn, supported property prices. For instance, Persimmon reported a 37% reduction in homes built between July and November. Although the builder expects a slightly higher total for the year than previously anticipated, the overall trend in construction is worrying.

Assessing the Bigger Picture

While house prices have slipped from their peak levels, the anticipated dramatic drop has yet to materialize. According to the Land Registry, annual house price data shows only a minimal 0.1% decrease, with the average UK house price standing at £291,000 in September. This figure is not far from the all-time high recorded in November 2022 at £293,000.

The property market experienced a boom in 2021 as buyers rushed to take advantage of the temporary cut to stamp duty. This resulted in spikes in sales around the deadlines for the tax savings. However, 2023 has seen a substantial decline in the number of monthly transactions. In September, an estimated 92,600 transactions took place, marking a 19% drop compared to the previous year and a 2% decrease from August 2023.

The decline in demand over the past year has cooled the housing market. While recent months have shown some encouraging signs, including increased interest from prospective buyers and sellers, the market remains quieter than in previous years. Buyers currently hold the upper hand in negotiations, with many properties selling below their asking price.

The Future of House Prices

Looking ahead, experts predict that the cost of living crisis and high mortgage rates will continue to impact the housing market. Forecasts vary, with estimates of house price drops ranging from 2% to 12% in the coming years. The Bank of England’s decision to keep interest rates elevated and the expectation of limited rate cuts suggest that mortgage rates will remain high compared to recent history, constraining buyer demand and potentially exerting downward pressure on house prices.

While recent data indicates some stability in house prices, the uncertain economic climate and the prospect of high mortgage rates pose challenges to the housing market’s long-term stability. Combined with seller behaviour, differences between regions and the unstable nature of the economy, it remains hard to know what the future holds.

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