House prices rise 15.5% in a year as third of house buyers reduce their budget due to rising interest rates and cost of living crisis
- House prices climbed 15.5% in August but the market is still expected to soften
- Typical home now costs £292,000, a £39,000 rise in the last year
- Some 29% of prospective buyers have said they are reducing their budget
- For those relying on borrowing to buy the figure jumps to half of buyers
House prices in the UK have risen £39,000 in the last year, as reports suggest buyers are reducing their budgets to enable them to make a purchase.
Despite rising interest rates and the cost of living crisis, high demand for homes and low stock is said to be sustaining the price rises.
The average house price in the UK climbed 15.5 per cent in the year to July according to the ONS’s latest house price index, taking the average house price to £292,000.
Going up: House prices in the UK have risen £39,000 in the last year, the ONS says
The steep increase is a marked difference from the last few months, that have seen the rate of house price inflation slow. In June 2022, prices grew by 7.8 per cent according to the ONS.
The significant lift in house prices year-on-year in July was likely driven by the tapering down of the stamp duty holiday in June 2021, which reduced the maximum possible tax saving from £15,000 to just £2,500.
Figures suggest that, while the price of a home continues to rise, buyers are reducing their budgets as household finances are squeezed by increasing costs elsewhere.
Nearly a third of prospective buyers (29 per cent) say they have reduced budgets in response to the increased cost of living, according to a survey conducted by Savills.
This is most true for those more reliant on borrowing – including half (50 per cent) of those wanting to take the first step onto the property ladder, and 44 per cent of those who are looking to upsize.
The current climate has also dampened the appetite of movers. The net balance of people who are more committed to move in the next three months has fallen to -1.7 per cent, while a net balance of +7.1 per cent feel more committed to move in the next year.
Average UK house prices increased by £6,000 between June and July this year, compared with a fall of £13,000 between the same months last year.
Annual rise: House prices continued to climb in July, jumping 15.5% over the previous 12 months to a new average price of £292,000
Tax break impact: The steep annual increase in prices is in part due to the end of the stamp duty holiday in June 2021 that pushed prices down the following month
Andrew Montlake, managing director of mortgage broker, Coreco said: ‘The July data has been skewed by the stamp duty holiday so needs to be taken with a pinch of salt.
‘The reality is that the property market has been slowly cooling in recent months as the nation is gripped by an unprecedented cost of living crisis.
‘We’re also seeing valuers start to get more conservative due to the strong economic headwinds. With more rate rises a nailed-on certainty and the cost of living crisis set to worsen as we enter the winter, the property market will likely see modest price growth between now and the Spring.
‘Higher mortgage rates and the immense pressure on household finances are also likely to result in demand dropping off in the months ahead. As ever, though, the lack of supply will support prices and prevent a pronounced fall.’
Interest on the average two-year fixed rate mortgage is now 4.24 per cent, the highest it has been since since January 2013. It means those currently looking to remortgage at the end of a two year deal – who fixed in September 2020 when rates sat at around 2.24 per cent – can expect to see their monthly payments increase by over £200.
Lack of supply remains a significant issue for buyers. According to Savills more than half of buyers (54 per cent) say that a lack of stock is significantly inhibiting their ability to purchase a property. This is only slightly down from 63 per cent in April.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: ‘Although the numbers are strong, it’s a little early even for this, the most comprehensive of all the housing market surveys, to reflect the change in activity we’ve seen on the ground in the past few months.
‘The balance of power is shifting more towards the buyer but what these numbers do show is that there is still plenty of underlying strength which will mean a serious price correction is less likely.
‘A gentle softening has been happening and is likely to continue to do so over the next few months.’
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