We have seen a bit of a whirlwind when it comes to house prices over the past three years – to say the least!
With a no-deal Brexit looming in 2019, house price growth had slumped from an annual rate of 8.2% in June 2016 when Brexit was first announced to a paltry 0.6% by July 2019.
In the first few months of 2020 when a last-minute trade deal agreement had been agreed upon between the UK and EU prior to the Brexit deadline of 31 January 2020, house price growth began to look more promising with a 2.5% annual increase in house prices in March 2020.
Then, of course, came the worldwide COVID-19 pandemic and the property and construction industries came to a standstill for 3 months…
However, despite the doom and gloom house price predictions doing the rounds during the first UK lockdown period, pent-up demand and government initiatives like the furlough scheme and temporary stamp duty holiday kept the population at work (albeit remotely) and keen to take their next step on the property ladder as soon as they could. Defying pandemic predictions, house prices jumped significantly in 2020 and 2021 as demand massively outweighed supply, particularly for larger, detached homes in sought-after rural and coastal hotspots away from urban areas. In May 2021, house price growth had hit an impressive 9.4% as buyers scrambled to purchase before the first stamp duty holiday deadline.
Despite a slight dip to 8.8% growth in June 2021 as the exemption amount for stamp duty fell to £250,000 or less, house prices have continued to rise month on month over the last year according to Halifax. House price growth increased by 1.8% in June 2022 to hit an annual rate of 13%, which was the biggest monthly rise since early 2007 and the highest annual growth rate in 18 years. In Northern Ireland, annual house price inflation rose even higher to 15.2%, and growth in Wales and the South West of England was an impressive 14.3% and 14.2% respectively. The average UK house price also hit £294,845 in June 2022.
But what of July 2022 and beyond?
This rise in house prices has continued in July 2022, despite an increase in inflation to a worrying 9.1% and the latest of many interest rate rises to 1.25%, as the imbalance between supply and demand has acted as a buffer during the current cost of living crisis.
However, industry insiders are suggesting that even though available housing stock remains limited and the most active buyers in the higher earning wage brackets have remained largely shielded from the cost of living crisis by savings built up during the COVID-19 pandemic, we have now hit a peak in terms of house prices as the number of property purchases starts to drop to pre-COVID activity levels.
Despite mortgage lending levels remaining buoyant, rising mortgage rates will inevitably begin to limit demand as affordability becomes a factor for all homebuyers. And whilst unemployment remains low, growth in wages has happened at a much lower rate than house price growth, with full-time employees in England spending around 9.1 times their workplace-based annual earnings on purchasing a home in 2021 (6.4% in Wales). The housing affordability ratio has deepened significantly since 1997 when the average affordability ratio in England and Wales was a more achievable 3.1 times annual earnings.
Added to this is the political uncertainty in the wake of Prime Minister Boris Johnson’s resignation, with wavering confidence in the government and the potential of a general election affecting housing market confidence. Buyers are beginning to negotiate more freely on property prices in what has resolutely been a seller’s market up to now and house price growth is expected to fall to 5% or less by the end of 2022 with a decrease in prices anticipated over the next 12 to 24 months.
Indeed Russell Galley, Managing Director at Halifax, notes that “…while it may come later than previously anticipated, a slowing of house price growth should still be expected in the months ahead.”
Thankfully – depending on whether you are a current or prospective homeowner perhaps! – house price forecasters suggest that the continued housing shortfall, which will not be addressed until we have a change in leadership or an overhaul of the government entirely, alongside high employment levels and increased housing equity will mean that we avoid a pronounced housing market crash of the likes seen in 2008. Exactly how long a drop in house prices could last though is still uncertain at this stage.
