UK housing market remains surprisingly buoyant

Worsening economic conditions across the globe have done little to temper the UK housing market, with prices recording a ten per cent, year-on-year rise during August.

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2 September 2022

However, Nationwide - the country's largest building society - said there were signs the market was "losing some momentum" with property inflation declining from an annual rate of 11 per cent in July.

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Average house price hits new record

The monthly increase last month stood at 0.8 per cent, considerably more than economists had been forecasting and resulting in the average house price hitting a new record of £273,751, which means the average has increased by almost £50,000 over the past two years.Robert Gardner, Nationwide’s Chief Economist, said: "There are signs that the housing market is losing some momentum, with surveyors reporting fewer new buyer enquiries in recent months and the number of mortgage approvals for house purchases falling below pre-pandemic levels."

House prices to continue their rise?

However, the slowdown to date has been modest, and combined with a shortage of stock on the market, has meant that price growth has remained firm.“We expect the market to slow further as pressure on household budgets intensifies in the coming quarters, with inflation set remain in double digits into next year."Moreover, the Bank of England is widely expected to continue raising interest rates, which will also exert a cooling impact on the market if this feeds through to mortgage rates, which have already increased noticeably in recent months."The main reason for the continuing rise in prices appears to be the ongoing shortage of properties coming onto the market. Nationwide also reported that, at a time of rocketing energy prices across the world, the demand for the most energy-efficient homes was likely to increase.

Housing supply impacting demand

Andrew Montlake, Managing Director at mortgage broker Coreco, said: "It's frankly mind-blowing that annual house price growth is still in double digits. However, with inflation and energy bills set to rise into the stratosphere, and rates also set to increase further, the property market will soon come back down to earth. "The one constant in these times of extreme flux, of course, is the lack of supply and homes being built. The abject lack of good quality, affordable housing will support prices even as we go through an unprecedented cost of living crisis."Tom Bill, Head of UK Residential Research at estate agents Knight Frank, said that he did not anticipate a 'cliff-edge' movement in prices, although he foresaw growth softening into single digits. But he added: "Stewardship of the economy under the new prime minister is now the key risk facing the property market. If unemployment stays low, inflation remains relatively contained and we avoid the Bank of England's prediction of a recession lasting more than a year, prices should continue to rise modestly."Jeremy Leaf, north London estate agent and a former Royal Institution of Chartered Surveyors residential chairman, added: “Rises in the cost of living and interest rates are certainly making a difference but the latter has not filtered through to the figures yet, bearing in mind so many borrowers are on fixed-rate terms.”