UK house prices hit a fresh record last month, but the market may be cooling off

Average UK house prices rose in January shows Halifax data but there are signs that the market is cooling down. Saloni Sardana looks at why prices may decline.

The average UK house price hit £276,759 in January. That’s a fresh record, and £24,500 higher than this time last year. 

That said, the rate of house price inflation showed possible signs of cooling down. The latest reading from Halifax showed that prices rose by 0.3% during the month, the smallest such increase since June 2021. That won’t be a huge comfort to potential first-time buyers, given that the annual rate of inflation still stands at 9.7%. 

Cost of living crisis to weigh on house growth 

Russell Galley of Halifax said that affordability remains a big issue for consumers as “house price rises continue to outstrip earnings growth”. Meanwhile, rising living costs are also squeezing the available income for servicing mortgages.

Consumers are being financially squeezed from almost all corners, with energy prices at record highs (the energy price cap increased by £693 last week), plus a national insurance hike coming in April. 

Mortgages may also become at least a little more expensive – the Bank of England raised interest rates last week to 0.5% and investors are currently betting the central bank will hike interest rates at least twice again this year in a belated attempt to tackle inflation. 

“While the limited supply of new housing stock to the market will continue to provide some support to house prices, it remains likely that the rate of house price growth will slow considerably over the next year,” said Galley. 

Martin Beck, chief economic advisor to EY ITEM Club, an economic forecasting group, reckons January’s slowdown in Halifax’s January reading may be a harbinger for things to come. “This year won’t see a boost to prices from the stamp duty holiday which ran through much of 2021. To the extent the tax holiday brought forward purchases, its after-effects may drag on housing market activity in the near term.”

He said expected interest rate hikes coupled with the spike in the cost of living from higher inflation and tax rises mean  “it’s likely that fewer people will be able to afford to borrow the necessary amount they need to buy at higher mortgage rates”. 

But while EY Item Club expects a slowdown in the housing market, it doesn’t expect house prices to drop, because a buildup of household savings during the pandemic should offset the impact of higher costs. 

“With around 80% of the stock of UK mortgage debt at fixed rates, most mortgage holders are well insulated from increases in mortgage rates in the short term,” it said. 

How different regions in the UK performed 

Wales recorded the strongest pace of annual growth at 13.9%, with the average house price now standing at £205,253. Northern Ireland also recorded strong growth with prices up 10.2% compared to last year, giving an average property value in January of £170,982.

House price growth cooled a little in Scotland to 8.9%, with the average property price now £192,698. In England, the North West was the strongest-performing region, with the average price up by 12% on the year, to £213,200. 

While London was still the weakest-performing area of the UK, the capital continued its upward trajectory, with annual price growth rising for a third consecutive month to 4.5%. That’s  double the rate recorded in December and the most robust performance in a year. 

Recommended

Avoid easyJet shares – there are better airlines to invest in
Share tips

Avoid easyJet shares – there are better airlines to invest in

EasyJet used to be one of Europe’s most impressive airlines. But now it is facing challenges on all fronts and losing out to the competition. Rupert …
16 May 2022
Value is starting to emerge in the markets
Investment strategy

Value is starting to emerge in the markets

If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy tra…
16 May 2022
Britain’s ten most-hated shares – w/e 13 May
Stocks and shares

Britain’s ten most-hated shares – w/e 13 May

Rupert Hargreaves looks at Britain's ten-most hated shares, and what short-sellers are looking right now.
16 May 2022
Is the oil market heading for a supply glut?
Oil

Is the oil market heading for a supply glut?

Many people assume that the high oil price is here to stay – and could well go higher. But we’ve been here before, says Max King. History suggests tha…
16 May 2022

Most Popular

Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
High inflation will fade – here’s why
Inflation

High inflation will fade – here’s why

Many people expect high inflation to persist for a long time. But that might not be true, says Max King. Inflation may fall faster than expected – and…
13 May 2022
What the Ukraine crisis might mean for ESG investing
Advertisement Feature

What the Ukraine crisis might mean for ESG investing

The Ukraine crisis has brought many of the issues around ESG investing into sharper focus. Where does the sector go from here?
3 May 2022