Average house price hits a record high of £217,613

Annual house price growth slowed again to 10.7% in June, from 11.2% in May. But the average UK home climbed to a new record high of £217,613, with average prices increasing by over £26,000 in the past year.

“There are tentative signs of a slowdown, with the number of mortgages approved for house purchases falling back towards pre-pandemic levels in April and surveyors reporting some softening in new buyer enquiries. Nevertheless, the housing market has retained a surprising amount of momentum given the mounting pressure on household budgets from high inflation, which has already driven consumer confidence to a record low.

Part of the resilience is likely to reflect the current strength of the labour market, where the number of job vacancies has exceeded the number of unemployed people in recent months. Furthermore, the unemployment rate remains close to 50-year lows. At the same time, the stock of homes on the market has remained low, which has helped to keep upward pressure on house prices.

The market is expected to slow further as pressure on household finances intensifies in the coming quarters, with inflation expected to reach double digits towards the end of the year. Moreover, the Bank of England is widely expected to raise interest rates further, which will also exert a cooling impact on the market if this feeds through to mortgage rates”. Said Robert Gardner, Nationwide’s Chief Economist.

“Annual house price growth hit a high point in March, but has been dropping back ever since. This isn’t coming as a shock to anyone, because we were just waiting for the huge challenges facing buyers to feed into the figures.

Rocketing house prices themselves have taken a toll. Since the onset of the pandemic, every area apart from London and its immediate surroundings have seen prices rise by at least a fifth. In the South West, growth over this period has hit an eye-watering 27.7%, and in Wales it’s 26.2%. There comes a time when prices simply rise out of reach for anyone hoping to buy a first property or move significantly up the ladder.

At the same time, inflation is inflicting incredible pain on buyers. They don’t just face the problem that the rising price of everything from energy to food and fuel makes it difficult to stretch to a bigger mortgage, they also face the concern of mortgage lenders, who feed these figures into affordability calculations and conclude that they can’t afford the move. It doesn’t help that wages have fallen so far behind inflation. Lenders prefer to take into account your usual salary – without bonuses – and after inflation these have dropped 2.2% in a year.

As the Bank of England raises rates to keep inflation under control, this also puts a dent in buyer enthusiasm. Mortgage rates are still low by historic standards, but they are rising every month, which raises the spectre of much higher payments further down the line.

The question is whether we will see prices slow to a crawl, stagnate, or start to drop if we see a recession. An awful lot depends on things we don’t yet know – including how high interest rates will go, how deep any recession might be, the impact it could have on jobs, and whether this is serious enough to cause real damage to the property market. Certainly the risks on the downside are starting to build. We’re seeing the first predictions of price drops, and while these are currently a few voices in the crowd, they’re highly unlikely to be the last”. Said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.

The Nationwide House Price Index for June was released yesterday.