"Inflation will be the key driver of the housing market"
The average house price in the UK was £285,476 in February, up 2.1% annually and has been stable over the last three months, according to the latest Halifax House Price Index.
There was a 1.1% increase in house prices when compared with January, when the average price was £282,360, although Halifax noted that overall prices are flat compared to three months ago.
“Recent reductions in mortgage rates, improving consumer confidence, and a continuing resilience in the labour market are arguably helping to stabilise prices following the falls seen in November and December,” Kim Kinnaird, director at Halifax Mortgages, said. “Still, with the cost of a home down on a quarterly basis, the underlying activity continues to indicate a general downward trend.”
“In cash terms, house prices are down around £8,500 on the August 2022 peak, but remain almost £9,000 above the average prices seen at the start of 2022 and are still above pre-pandemic levels, meaning most sellers will retain price gains made during the pandemic. With average house prices remaining high, housing affordability will continue to feel challenging for many buyers.”
Marc von Grundherr, director at lettings and estate agency Benham and Reeves, pointed out that while current house price performance may remain sluggish when compared to the meteoric rates of the pandemic market boom, there’s been a notable uptick in activity in 2023, reversing the slowdown seen during the back end of last year.
“Although previous reports of housing market health have been less than positive, those of us on the ground are privy to changes in market sentiment far sooner than the reporting of topline statistics allows,” he added.
“Yes, we expect the market to move forward at a more measured pace over the year ahead, but what we simply aren’t seeing is an exodus of buyers forcing sellers to dramatically reduce prices, bringing the market to its knees in the process.”
Will Rice, chief executive of residential mortgage lender Generation Home, said they expect house prices to stabilise throughout 2023.
“The majority of the correction has already happened, and while there may be a little room left to fall, it won’t be much,” he continued. “Inflation will be the key driver of the housing market in the near future. It will determine what the Bank of England decides to do with the base rate, which will directly pass through to mortgage rates and housing costs, which in turn will affect the level of demand from buyers, determining house prices.”
James Briggs, head of personal finance intermediary sales at Together, agreed that the outlook for the UK market hangs on what happens next with inflation and interest rates.
“First-time buyers may continue to act with caution until the picture is clearer, delaying purchasing decisions until later this year – causing activity to slow,” Briggs stated. “All eyes will be on the Spring Budget later this month, with hopes for a concrete plan to support hopeful buyers and existing borrowers.
Mark Harris, chief executive at mortgage broker SPF Private Clients, said lenders would continue to jockey for position with a number increasing the pricing of their cheapest five-year fixes.
“However, even if there is another base rate rise this month, there is a growing expectation that rates are close to their peak, and if inflation also continues to fall, the outlook appears brighter for borrowers.”
Annual growth rate slows in all nations and regions
The February Halifax House Price Index also revealed a slowing in annual growth rate in all UK nations and regions, most significant of which was observed in the North East, at 1.1% growth in February versus a rise of 3.6% in January. Homes now cost an average of £163,953 in that region.
Average house prices in London are now £526,842, down by 0.9% over the last year. Despite this slowdown, homes in London still cost over £240,000 more than the UK national average.
Annual growth fell the least in Scotland, where house prices now average £198,779, with a growth rate of 2.2% compared with 2.3% in January. Similarly in Wales, annual growth in February was 1.2% versus 1.9% in the previous month, with homes costing £210,917 on average.
Those purchasing a home in Northern Ireland will now pay £185,009 on average, with an annual growth rate of 5.7%, compared with the 7% in January.
Flats see an annual price fall
Halifax reported that prices of flats have been in negative territory over the past 12 months, with -0.3% annual growth. Meanwhile, prices for terraced properties have broadly stagnated at 0.3%.
Prices of detached properties have increased by just 1.5% on the year, the lowest rise since the end of 2019.
Annual price inflation remains stronger for new houses, hitting a 6.6% increase in February – a four-month high. Existing properties, with an annual price growth of 1.1%, remain unchanged at the lowest in nearly a decade.
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