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How Are House Prices Rising?

UK house prices remain a constant topic of conversation, with consecutive interest rate hikes leading to higher mortgage prices but not a corresponding fall in the property market. In fact recent data actually showed an increase in average house values. How is that possible?

The June 2023 Price Index, of property website Zoopla, generated a 1.2% annual rise in UK house prices following a surprisingly bouyant spring. This late surge helped to turn the quarterly growth rate positive. Yet, let’s not get too carried away, only 12 months earlier, year-on-year house price growth exceeded 10%.

Data from the lender Nationwide also confirmed that house prices remained steady through June, with the number of mortgage applications unaffected despite higher borrowing costs. The average property in Britain now costs £285,932.

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Regional variations and changes in preferences

This overall gain, all be it marginal, in avearge houses prices was achieved with a wide degree of geographical disparity. Values in 91 out of 375 local authority areas in the UK dropped by up to 2.2%. Additionally 18 areas experienced 0% growth in the past 12 months. Meanwhile, house prices dropped in over two thirds of London’s 32 boroughs. With values in the Capital still double the UK average a more significant market correction will be needed to make affordability sums work for many would be buyers. Many local authorities in the South East that surround London are also undergoing drops in house values following strong demand during the pandemic.

Why are house prices still so high?

House prices have risen dramatically since the turn of the century. The average UK home price has nearly tripled, this surge has been caused by a demand-supply mismatch and low-interest rates. However, a shift in interest rates has occurred since December 2021. The Bank of England has raised the base rate 13 times from its record low of 0.1% to now stand at 5%, a move aimed at controlling soaring inflation.

Higher mortgage rates have made homes more expensive to buy, pushing the housing market into a state of decline. More rate hikes are expected in 2023, which could lead to a further slowdown in the housing market, as mortgage repayments increase. The cost of living crisis will likely worsen this situation, with household budgets under increased strain. This will diminish the number of people who are able to buy homes. First-time buyers, in particular, are expected to defer their purchases, which will cause a wave across the market.

The big question that remains on everyone’s lips is: Will house prices crash in 2023?

Does market data point towards the largest recorded fall in house prices since 2011? Is a massive shift in the property market on the cards as many are fearing? The experts at Zoopla certainly don’t think so.

Are we headed for a price crash?

Despite the Bank of England raising the base interest rate to 5% and the cost of living crisis affecting disposable income, the housing market is (most will be thankful to hear) not expected to crash.

Prices will not drop off a cliff despite the number of homes for sale increasing and it becoming more of a buyers market. That’s the view of Zoopla. Though they do believe sellers will have to reset their expectations.

Zoopla found that there were 18% more homes for sale than the 5 year average in the last month. Stock levels are at their highest point since prior to the pandemic. Buyers have a greater selection of properties to select from and fewer alternative buyers to battle against. Already sales are completing according to the property website’s data at an average of 3.8% under the listed price.

Yet there will be a sufficient number of buyers in Zoopla’s opinion for them to forecast only a 5% drop in prices by the end of the year. High demand is likely to cushion the blow, resulting in a decrease rather than a crash in house prices.

Property Value Predictions for 2023

While many housing market predictions remain bullish due to the continued race for space, there is agreement that a perfect storm of high inflation and interest rates is defintely set to dampen the market to some degree. The Office for Budget Responsibility (OBR) predicts a 10% fall over the next two years, and property transactions are expected to drop by 20%. Halifax and Lloyds Bank echo similar sentiments, predicting house price falls of 8% and Robert Gardner from Nationwide forecasts a modest decline of 5%.

To conclude, although recent rises in UK base interest rates have sparked fears of a market crash, many in the industry believe it’s more likely that we will witness a slowdown rather than a crash in the housing market. Surprisingly robust and persistently high demand for housing is expected to act as a buffer against drastic drops. However, potential buyers will need to remain cautious and well-informed as they navigate the fast changing lending landscape.

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