Property prices record lowest monthly growth for nearly three years
Annual house price gains across the UK have slowed for a third month as the weakening economy, cost of living squeeze and rising interest rates started to have an impact on the property market.
The average UK house price hit a new record high of £271,613, but there are “tentative signs of a slowdown”, Nationwide building society said.
Prices rose 10.7% in the year to June, slowing from May’s annual rate of 11.2%, its monthly house price index showed. Property values were up 0.3% in June from the previous month, a notable slowdown from May’s 0.9% gain, but still the 11th monthly rise in a row.
“The market is expected to slow further as pressure on household finances intensifies in the coming quarters, with [consumer price] inflation expected to reach double digits towards the end of the year,” he said. “Moreover, the Bank of England is widely expected to raise interest rates further, which will also exert a cooling impact on the market if this feeds through to mortgage rates.”
‘In addition, mortgage rates are likely to continue to climb, so locking into a rate shortly could save hundreds over the longer-term.’
For the last two years, the property market has been a rollercoaster, from the near standstill during lockdown, to the national buying frenzy created by the stamp duty holiday, creating the largest upwards trend in property for years, but behind the scenes, there was a storm brewing, or rather a ‘perfect storm’
The combination of the markets opening up after lockdown, containers around the world sat in the wrong places, a shortage of microchips, the lack of human resources following Brexit and the departure of well over a million Europeans during lockdown, who are not allowed back, then add to that the horrendous rise in the cost of energy, contributing to the highest inflation figures for over four decades.
At the same time, there are hundreds of thousands of buyers suffering ‘post purchase remorse’ because they were swept away by the buying frenzy and are now pondering if they actually paid too much for their new home. These buyers are now having to deal with rising energy costs, the largest squeeze on domestic finances for decades.
Just one year ago, there were fixed mortgage deals for as little as 1% but now the cheapest deals are around 3% and as most borrowers only fix for 2/3 years, many of those who bought in 2020 are now beginning to find that they need to re-fix for as much as three times their initial rate.
One of the biggest contributing factors to the exponential rise in property prices, has been the shortage of properties coming to market, this may be in part, due to potential sellers fearing that they may sell and then not find another home, but there is also another factor, that is causing an ongoing bottleneck for those wishing to move to larger homes.
Following the changes to stamp duty rates in 2014, the cost of purchasing homes higher up the ladder has become prohibitive and therefore, we have seen property in the low to mid-range rising, but the extra cost has created a glass ceiling, and those thinking about moving from mid-range homes to higher end properties have slowed down dramatically, reducing the volume of available stock all the way down the chain.
Once again, property has been allowed to spiral out of control, leaving millions at the mercy of the unknown. Inflation will not come down in the foreseeable future, it never does, despite the fact that 75% of the rise is down to energy costs that have nothing to do with the government, although they must be held to account for their reckless push towards net-zero, leaving us more dependent on Russian fossil fuels than ever. Once inflation rears its head, it is an uphill task to slow it down, with every demand for higher wages contributing to the problem and as we all know, we are facing a summer of industrial action.
It is impossible to predict where we will be in a years time, but one thing is for certain, the only direction of interest rates is upwards, they may peak at 2.5/3% but they could easily go much higher. One thing that history has taught us is that where interest rates are concerned we can never say never.
Those of you who are not old enough to remember ‘Black Wednesday’ will be all too aware what can happen, but this time, the danger for borrowers is so much higher. For the last decade, we have not been in a climate where the average mortgage rate has been 7/8% but rather 2/3% with people budgeting on the unsustainable low rate, the problem is, that when mortgages are so low, any movement in interest rates is amplified. Many borrowers will be finding that when their fixed deal ends, they could be facing a new payment that is double or even triple their existing rate, the question is, what effect will this have on the market, will the number of distress sales increase and how will millions of people cope with a rising cost of living on top?