Back in July 2022, annual house price growth was running at 14.1%.
The average UK house price in May 2023 was £286,000, which is £6,000 higher than 12 months earlier, but £7,000 below a recent peak seen in September 2022.
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The figures were released on the same day it emerged inflation has eased by more than expected to its lowest level for 15 months.
Consumer Prices Index (CPI) inflation was 7.9% in June, down from 8.7% in May and its lowest rate since March 2022.
Nicky Stevenson, managing director at estate agent Fine and Country, says: “House prices continued to rise in May compared to a year ago, although mortgage rate rises are stifling growth as it eats into what buyers can afford.
“Today’s larger-than-expected fall in inflation will spark hopes that the Bank of England will be less inclined to hike rates further and that there will be more stability in the mortgage market as a result.”
Iain McKenzie, chief executive of the Guild of Property Professionals, says rising costs have reduced demand from potential buyers. He notes: “Affordability has been the biggest barrier to home ownership in recent times, inflating house prices beyond what people can afford and stopping prospective buyers from saving for a deposit.”
But according to the property platform Rightmove, asking prices are now sliding downwards owing to rising mortgage costs and a limited pool of available properties. It says £905 was wiped off average asking prices in July.
Riz Malik, director of R3 Mortgages, says the only factors that could revive the UK housing market will “either be a reduction in interest rates or a decrease in prices, with the latter the more likely scenario in the short term”.
Gabriella Dickens, a senior UK economist at Pantheon Macroeconomics, says a peak-to-trough drop in house prices of around 10% can still be expected.
“Note, though, that even if prices do fall that far, they still will be around 15% above their pre-Covid level,” she comments.
Where in the UK is house price growth rising?
Prices have been rising at differing rates across the UK, with Scotland and Northern Ireland witnessing the sharpest rises.
Average house prices increased over the 12 months to May to £304,000 in England (1.7% annual growth), £213,000 in Wales (1.8%), £193,000 in Scotland (3.2%) and £172,000 in Northern Ireland (5%), according to the ONS.
Within England, the North East recorded the highest annual percentage increase in house prices in the 12 months to May (4%) while the East had the lowest, with zero growth.
On a seasonally-adjusted basis, the average UK house price fell by 0.4% in May 2023, following a month-on-month increase of 0.5% in April 2023.
ONS head of housing market indices Aimee North says: “UK annual house price inflation slowed again in May for the seventh consecutive month.
“While the average UK house price remains higher than 12 months ago, prices are now £7,000 below the recent peak in September 2022.
“UK rental prices increased again, with the highest annual inflation since records began in 2016. Nationally, Wales experienced the highest annual inflation [in rental prices]. In England, annual inflation was highest in the West Midlands and lowest in the North East.”
What is happening in the rental market?
The ONS’s figures, covering the month of June 2023, showed private rental prices paid by tenants in the UK rose by 5.1% annually, up from 5% in the 12 months to May 2023. It was the biggest annual percentage change since records started in January 2016.
Rental prices increased by 5.1% in England, 5.8% in Wales and 5.5% in Scotland.
Within England, the highest annual percentage change in private rental prices in the 12 months to June was in the West Midlands, at 5.4%, while the North East recorded the lowest, at 4.4%.
London’s annual percentage change in private rental prices was 5.3% in the 12 months to June 2023, its highest annual rate since September 2012.
Nathan Emerson, chief executive of estate and letting agents’ body Propertymark, says: “Our members continue to tell us of the huge disparity in the number of properties available to rent and the growing number of renters looking for a home, ultimately continuing to put pressure on rent prices.”
Chris Druce, senior research analyst at estate agent Knight Frank, adds that trends in the rental market are likely to continue for some time.
“Demand continues to outstrip supply in the rental market, which has driven the increase in rental prices. There is little to suggest this will abate,” he says.
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Tom is a journalist and writer with an interest in sustainability, economic policy and pensions, looking into how personal finances can be used to make a positive impact.
He graduated from Goldsmiths, University of London, with a BA in journalism before moving to a financial content agency.
His work has appeared in titles Investment Week and Money Marketing, as well as social media copy for Reuters and Bloomberg in addition to corporate content for financial giants including Mercer, State Street Global Advisors and the PLSA. He has also written for the Financial Times Group.
When not working out of the Future’s Cardiff office, Tom can be found exploring the hills and coasts of South Wales but is sometimes east of the border supporting Bristol Rovers.
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