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The Housing Market

October 30, 2024

The UK’s property market can be seen as a key indicator for the economic health of the country. A prolonged housing shortage means that in theory, demand is outpacing supply. However, the Covid pandemic, rising interest rates, the higher cost of living and a lack of wage growth has led to a recent slowdown in property sales, and a drop in house prices over the past two years.

This property slowdown has been widely documented, and it has understandably rattled many property owners and investors. However, independent industry analysis suggests that there is less reason to believe that we are headed towards a property crash. In fact, according to most sources, the UK’s property market recovery is already underway.

The most recent Halifax¹ data found that average house prices fell by 0.1% in May 2024, month-on-month, and by 0.3% quarter-on-quarter. However, on an annual basis, property prices are actually up by 1.5%.

In certain areas, this annual growth was even more pronounced. Halifax reported that the strongest performing area in the UK was the north-west of England, where house prices grew by 3.8% on an annual basis in May. In Northern Ireland, prices were up by 3.2% over the same period.

And while the base rate remains stubbornly high at 5.00%, a slew of analysts have predicted a rate cut by the end of the year. This appears to have reassured house buyers, who have been actively seeking out mortgages again. In March, the Bank of England confirmed that UK mortgage approvals reached an 18-month high², with lenders approving a total of 61,300 home loans.

This suggests that would-be homeowners are regaining their confidence and showing a willingness to invest in property again, despite the market’s recent volatility.

This has also been reflected in the housebuilding market. In a recent trading statement, housebuilder Bellway³ reported a rise in customer demand as a result of “an improvement in affordability, driven by a moderation of both mortgage interest rates and consumer price inflation and an increase in wages.”

By June 2024, the average rate for a two-year fixed mortgage at 75% loan-to-value was 5.89%⁴. This is more than double the average rate of early 2022. However, property buyers may be willing to stomach these rates in the expectation that they will come down again by the time they need to refinance. In the meantime, they can take advantage of slightly lower property values to buy their dream home or investment property now.

Historical data from the Office for National Statistics⁵ found that by the end of 2023, average UK property prices were at a 12-year low. By December 2023, the average home was selling for £285,000, £4,000 lower than 12 months previous. In many ways, it is a buyers market – just as long as buyers are willing to stomach a couple of years of higher rates.

Seasoned property investors know that this is a cyclical market which is closely tied with macro economic movements.