But demand for new homes begins to wane…
An average UK home costs 8.3% or £19,800 more in July 2022 than last year, but demand for new homes is starting to weaken as mortgage rates rise and the cost-of-living crisis begins to bite.
This was revealed in the latest Zoopla House Price Index, which also found that mortgage rates for new buyers are now at 4% – meaning the average first-time buyer will need an extra £12,250 to buy a home today compared to a year ago, and up to £35,000 more in London.
Zoopla also reported that the average time to sell a home is also lengthening, taking 22 days right now, compared to only 19 days in April.
The South West and Wales are jointly the best performing regions in terms of house price growth with an annual growth rate of 10.6%. Zoopla said strong demand and healthy volumes of new sales agreed in the first half of the year continue to support the headline rate of growth.
Buyer demand, on the other hand, has started to fall but remains well above the five-year average, tracking at +17%. However, that demand has come down from a peak of +54% in May earlier this year, and is likely to continue to weaken throughout the rest of 2022.
Read more: What has caused the drop in Britain’s new build stock?
According to Zoopla, there are a number of reasons why the housing market is remaining resilient, despite concerns over interest rate rises and cost-of-living increases causing a drop in consumer confidence.
Homebuyers tend to earn higher incomes and may not yet be feeling the pinch of higher living costs. Figures show that the large majority of those buying with a mortgage, accounting for seven in 10 of all new sales, sit within the UK’s middle to upper income bands. Zoopla said that the rising cost of living is hitting those on lower incomes first.
“It’s clear that UK households are facing a squeeze on incomes and living standards on multiple fronts, which will filter through into housing market activity and house price growth into 2023,” Richard Donnell, research director at Zoopla, said. “The primary risk remains in further increases in the base rate in order to control inflation, which will have a knock-on impact on mortgage rates.
“The higher rates move above 4%, the greater the impact on prices and sales volume,” he stated.
Ben Bailey, chief customer officer at specialist lender Even, added that rising house prices come as another hammer blow to the aspirations of prospective first-time buyers.
“And with the government’s Help to Buy scheme now also just months away from its end, the options for Generation Rent are becoming more limited,” Bailey pointed out. “But we are seeing innovation in the market to bridge the absurd affordability gap in lieu of government support.
“For those seeking to get a first foot on the ladder, it’s now about considering what alternatives are available to them – something a good mortgage broker will be able to assist with.”
Read more: Weighing up your options during the cost-of-living crisis.
Kay Westgarth, head of sales at Standard Life Home Finance, added that anyone considering the use of equity release to help their younger relatives onto the housing ladder should consult with an adviser who can provide guidance on the broad range of products that are currently available.
“In doing so, consumers can understand their options and make informed decisions on which products are suitable for their individual circumstances,” Westgarth said.
