UK housing market: what’s really happening?

Signs of a slowdown in the property market always cause unease and excite certain sections of the press into doomsday predictions. But what is really happening out there?

This month’s Halifax House Price Index reveals that UK house prices climbed by an incredible 11.8% in the twelve months to July. By comparison, it was around 2% per annum during 2018 and 2019 – both considered strong years. However, Halifax’s figures also show that month on month, prices slipped by 0.1% in July. While that may seem so small as to be almost insignificant, it’s worth remembering that was before the Bank of England raised interest rates by 0.5% to 1.75%.

Affordability

Even without the rapidly rising cost of living, it was inconceivable that prices would have continued the same vertiginous trajectory. The average UK house price currently stands at around £280,000, a figure already unaffordable for so many. By my own rough and ready calculation, if the recent trend had been maintained, the average house price would have passed the £400,000 mark within four years. Inevitably, rapidly declining affordability would have soon begun to apply the brakes sharply in any event.

Early signs

Signs that the market was cooling have been evident for some months. Although demand has continued to outstrip supply, it’s clear that far more properties have come to market recently as potential sellers look to bow out at what they perceive to be the top of the market. Also, those of us addicted to Rightmove have noticed that many properties that have been marketed at clearly speculative prices have been reduced.

With a recession pretty much inevitable, interest rates rising, energy bills soaring, and house prices likely to dip further, it may not seem like the best time to buy. Yet, although the market has certainly come off the boil, transaction levels remain broadly comparable to those pre-pandemic. It may seem a long time ago, but in the months before first lockdown, many predicted that the bubble was then about to burst.

Mortgage availability

The one constant we see is that demand continues to outstrip supply, perhaps not to the same degree as six months ago, but still by a margin significant enough to buoy prices. And there’s still evidence of people looking to move out of expensive cities, especially London, seeking a better quality of life. With that in mind, I believe that mortgage availability is the factor that will have the greatest effect on how far the market cools.

Currently, availability is far better than early last year before the government launched their Low Deposit Mortgage Scheme for first-time buyers. However, the Moneyfacts UK Mortgage Trends Treasury Report reveals that mortgage availability has dropped again this month, albeit less dramatically than in July. At the beginning of August, there were 4,407 mortgage products available, 149 fewer than a month before. And unsurprisingly, mortgage affordability continues to fall as the cost of living crisis bites.

One thing of which I am certain though is that the housing market will bounce back. And however long that takes, the history of recent decades suggests that when it does, it’s likely to bounce back stronger than ever.