Recent housing market data releases have provided more grounds for optimism across the wider UK housing market than we have seen for several months.
Firstly the Nationwide house price index showed the first monthly increase of 0.5% in the average UK house price since August last year. This leaves prices -4.0% below their pre-budget peak last August, and down -2.7% on an annual basis. While we have to be cautious about monthly volatility, the rate of falls had already been slowing, and last month’s growth is another sign of a gradual return of confidence to the market. This was followed by an increase in the number of mortgage approvals for house purchases recorded by the Bank of England, which rose by 18% to just over 52,000 on a seasonally adjusted basis in the month of March. Furthermore, Zoopla reported that while agreed sales were still 14% down on the same period in 2022 in the four weeks to the end of April, they were some 6% above 2019 levels.
In Prime Central London new instructions in April were up by 8.8% on April last year, taking the year-to-date rise to 9.2%. Also, the number of properties being withdrawn from sale is well below its longer-term trend level (year to date 16.3% below the 2017-19 pre-pandemic average) according to Lonres. While March saw signs of a potential slowdown in the £5m+ market across Prime London, April saw a bounce back. This top end of the market remains the strongest performing segment, with relative activity stronger than in other price bands. £5m+ sales volumes in April were 26.1% up year-on-year and 58.2% above the April pre-pandemic average (2017-2019 April).
All of this is despite the increased proposed rate rise which occurred this month. Interest rates were hiked to 4.5% from 4.25% - the highest in almost 15 years - in the battle to slow inflation. UK inflation remains close to its highest level for 40 years, and is not dropping as quickly as predicted. The increase in interest rates will mean higher mortgage, credit card and loan payments for some people. Around 85% of all mortgages are fixed-rate, and about 1.3 million households are expected to reach the end of their deals this year and face a hike of up to £200 per month, based on current rates.
Now that the Bank has put up its base interest rate, banks typically follow suit with their own rises. But Simon Gammon, managing partner at Knight Frank Finances, says he isn't expecting any major moves to mortgage rates, as several large lenders had already put up prices in the two weeks before the announcement. "Mortgage rates are going to come down eventually, but probably not for the rest of this year - at least not by much. The biggest conundrum for most borrowers at the moment is whether to fix for two years or take a tracker. Of course, that comes with the risk that your monthly payments will rise if the Bank of England opts to raise interest rates further, so it's a highly personal decision." Mortgage lenders are also offering new products to help people struggling to borrow money because of climbing interest rates, such as deals for first-time buyers without a deposit - or people trying to renew their mortgage.
Meanwhile, while there is optimism, we must note that the number of properties under offer, a lead indicator, was 11.7% lower than a year earlier, suggesting that activity is unlikely to increase significantly over the coming months – just over half the properties that sold in April (50.2%) saw their asking price reduced.