House price bounce: the halcyon days before mortgage misery kicks in

Sarah Coles, head of personal finance at Hargreaves Lansdown, comments on the publication ONS House price data and the Land Registry data for April 2023, showing a house price bounce and the halcyon days before mortgage misery kicks in.

Key points from publications:

• • House prices rose 0.4% between March and April.
  • Average house prices were up 3.5% in the year to April – down from 4.1% a month earlier.
  • The average house price hit £286,000: £9,000 higher than a year earlier, but £7,000 below September’s peak.
  • The North East had the lowest average house price at £160,000, but the biggest annual rise – at 5.5%.
  • London house prices hit £534,000, but saw the lowest annual growth – up just 2.4% in a year.
  • Flats are seeing slower price growth – at just 2.7% in a year.
  • New-build property is up 23.2% in a year.

Sarah Coles says:

“House prices rose in April, as the spring boom injected more life into the market and brought an end to monthly falls.

“However, mortgage market movements in the past few weeks could usher in a new era that brings an abrupt conclusion to these halcyon days.

“Despite price rises in April there were already some warning signs, with buyer demand falling with each passing month, and sales at rock bottom.

“The fall of mortgage approvals didn’t bode brilliantly for the months ahead either. 

“However, the damage is likely to have been done in recent weeks as mortgage rates have ramped up.

“Inflation figures released last month started the rot, with core inflation rising in April, which convinced the market that rates would need to be higher for longer.

“This was priced into fixed rate mortgages, which started to climb. Then, last week, jobs data added insult to injury, with wage inflation of 7.2%.

“This raised concerns that higher wages would push prices up even further, which would mean interest rates might have to increase again.

“As a result, mortgage rates surged again – pushing through 6% for a two-year fixed rate.

“Now we’ve had more bad news on the core inflation front, after it rose again in May.

“This is likely to fuel rate expectations even further and mean even more alarming mortgage rates.

“As a result, some would-be buyers will be pushed out of the market, dampening demand.

“At the same time, remortgagers will face alarming hikes in their repayments, raising the threat of forced sales, as people can no longer keep up with repayments.

“It may well mean we see more monthly falls – feeding through into annual declines as we go through the summer.”

“The market still has one thing in its favour: a robust labour market.

“Unemployment has been at real lows, and although we’ve seen small increases, we haven’t seen any major signs of weakness just yet.

“Unfortunately, the higher that the Bank of England raises rates, the more it increases the risk of recession, which could mean jobs become increasingly insecure, which would take an even more serious toll on the market.”

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay