The Resilience of the UK Housing Market: Insights and Outlook
Introduction
The housing market in the UK has been a topic of much discussion in recent months. With house prices falling for the fourth consecutive month, many are wondering what the future holds for the market. In this article, we will explore the current state of the housing market, the factors contributing to its resilience, and provide insights on what the future may hold.
The Current State of the Market
Data from Halifax reveals that UK house prices fell by an average of £285,044 in July, marking a continued decline. However, the market has also shown signs of increased activity. Despite a 0.3% decline in average house prices last month, this aligns with rival lender Nationwide’s reported 0.2% decline. Halifax’s data shows a slower annual decline of 2.4% in July, compared to 2.6% in June and 3.8% reported by Nationwide. This suggests that the housing market has proven relatively resilient, even in the face of the steepest rise in interest rates in 35 years.
Kim Kinnaird, director of Halifax Mortgages, attributes this resilience to the activity among new buyers, who have been more willing to settle for smaller homes to offset higher borrowing costs. Despite predictions of continued house price falls in the coming year, Kinnaird expects a gradual decline rather than a precipitous one, citing strong wage growth and a modest rise in unemployment as contributing factors.
Factors Contributing to Resilience
The resilience of the UK housing market can be attributed to several key factors:
- Delayed Impact of Interest Rate Rises: Martin Beck, chief economic adviser to the EY Item Club, suggests that higher official interest rates have been slow to spread to mortgage holders. This delay is due to fixed-rate offers expiring, resulting in the average interest rate on existing mortgages in the UK rising to just 2.93% in June, compared to lenders quoting rates of around 6.85% for a typical new two-year fixed mortgage.
- Healthy Savings and Mortgage Extensions: Many homeowners have healthy savings, which provide support during economic uncertainty. Additionally, some homeowners are extending their mortgage terms to accommodate the current market conditions.
- Modest Decline in Real Terms: While nominal house prices have seen a relatively modest decline, the impact of high consumer price inflation means that they have already fallen more sharply in real terms.
The Future Outlook
While the market has demonstrated resilience thus far, most analysts anticipate the price decline to continue in the year ahead. Uncertainty lies within the buy-to-let market, as landlords face rising mortgage costs and stricter regulations. The Bank of England believes that owners’ exits have not yet had a significant effect on prices, but the sector remains under pressure, and the future supply of properties available for purchase is uncertain.
Imogen Pattison, assistant economist at consultancy Capital Economics, predicts that despite recent inflation news, mortgage rates are likely to stay close to current levels in the next year. This is expected to lead to a new slump in demand and further accelerate the decline in home prices. Given these predictions, it is crucial for both buyers and sellers to carefully consider their options and navigate the market accordingly.
Conclusion
The UK housing market has shown resilience despite consecutive declines in house prices. Factors such as the delayed impact of interest rate rises, homeowners’ savings, and modest declines in real terms have contributed to this resilience. However, the future outlook suggests a continued decline in prices, especially in the buy-to-let market. As the market evolves, it is essential for individuals involved in the housing market to adapt and make informed decisions to maximize their opportunities.
Summary
The UK housing market has experienced a fourth consecutive monthly drop in house prices, signaling a potential decline in the coming year. However, the housing market has shown resilience, with increased activity and a slower annual decline rate compared to previous months. Factors contributing to this resilience include the delayed impact of interest rate rises, homeowners’ healthy savings, and modest declines in real terms. Despite this, analysts expect price declines to continue, particularly in the buy-to-let market. Mortgage rates are likely to stay close to current levels, leading to a decline in demand and further price decreases. As the market evolves, it is important for individuals to make informed decisions and adapt to these changing conditions.
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UK house prices fell by an average of £285,044 in July, marking a fourth consecutive monthly drop, but with the market showing more activity, according to data from Halifax.
Average house price it fell 0.3% last month, broadly in line with a 0.2% decline reported by rival lender Nationwide last week.
But data from Halifax showed a July annual decline of 2.4%, slower than the 2.6% rate of decline reported in June and less than the 3.8% reported by Nationwide.
The figures suggest that the housing market has so far proved relatively resilient in the face of the steepest rise in interest rates in 35 years.
Kim Kinnaird, director of Halifax Mortgages, said activity among new buyers in particular has held up relatively well, with people settling for smaller homes to offset higher borrowing costs.
Though home prices are likely to continue falling in the coming year, he said, given strong wage growth and only a modest rise in unemployment, he expected “a gradual rather than a precipitous decline”.
Martin Beck, chief economic adviser to the EY Item Club, said one reason for the resilience was that higher official interest rates were only slowly spreading to mortgage holders as fixed-rate offers expired.
The average interest rate on the existing stock of UK mortgages had risen to just 2.93% in June, even though lenders were quoting rates of around 6.85% for a typical new two-year fixed mortgage.
Ben Broadbent, Deputy Governor for Monetary Policy at the Bank of England, noted last week that the BoE’s latest key rate hike, to 5.25 per cent, has not triggered any further rise in rate expectations of interest two or three years later. rates are fixed.
The BoE also noted that while the decline in nominal house prices had so far been relatively modest, high consumer price inflation meant that they had already fallen more sharply in real terms.
However, most analysts expect the price decline to continue over the year ahead.
The buy-to-let market is a source of uncertainty, with landlords facing both rising mortgage costs and stricter regulation. The BoE believes that owners’ exits have not yet had a significant effect on prices. But Kinnaird said the sector was under pressure and “remains to be seen. . . what it could mean for the supply of properties available for purchase”.
Beck cautioned that although many homeowners had healthy savings and others were extending mortgage terms to accommodate, “these sources of support will only go so far.”
Imogen Pattison, assistant economist at consultancy Capital Economics, said that despite the best recent inflation news, mortgage rates were likely to stay close to current levels next year, leading to a “new slump in the demand” and accelerating the decline in home prices this year.
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