London house prices set a trend the UK may be doomed to follow

Sarah Coles, head of personal finance at Hargreaves Lansdown, comments on ONS House Price Index and the Land Registry House Price Index for June 2023, showing London house prices setting a trend the UK may be doomed to follow.

Key points from publication:

• • In London, house prices are down 0.6% in a year. It’s the first negative reading in any region since the market was effectively closed in spring 2020.
  • Average house prices across the UK were up 1.7% in the year to June – down very slightly from 1.8% a month earlier.
  • The average house price hit £288,000: £5,000 higher than a year earlier, but £5,000 below September’s peak.
  • House prices rose 0.3% between May and June – after falling 0.3% in the previous month (seasonally adjusted).
  • The North East had the lowest average house price at £161,000, and London had the highest at £528,000.

Sarah Coles says:

“London is setting a fashionable trend that the rest of the UK may be doomed to follow.

“House prices in the capital have fallen in the year to June – for the first time since the market was effectively closed at the start of the pandemic.

“The country as a whole clung onto positive growth of less than 2% over the past 12 months, and the outlook for the coming months looks fairly grim.

“This set of figures reflect sales agreed as far back as March, when the market looked more attractive.

“Mortgage rates were on their way down from the highs they hit in the aftermath of the mini-Budget, and reached their cheapest in six months.

“It means sales completed in June recovered slightly from a downward trend, and house prices during the month actually rose very slightly from a month earlier.

“The drop in London owed an awful lot to the fact that house prices in the capital are now so much more expensive than anywhere else in the UK.

“At an average of £528,000, they’re almost twice as pricey as the UK average and more than three times higher than the average in the North East.

“It means buyers having to take out larger mortgages, so higher rates are more of a stretch, and more would-be buyers are priced out. 

“Since March, we know life has got tougher for buyers.

“Moneyfacts shows that the average 2-year fixed rate mortgage rose from 5.32% at the beginning of March to a recent peak of 6.85% at the beginning of August.

“This will take a toll elsewhere in the UK, and there’s every chance that annual house prices will turn negative in far more regions as we go into the autumn.

“There’s still the chance of a relatively soft landing for the market, because there are still some positive signs.

“Mortgage approvals have been rising in recent months, and we’re starting to see signs that the fixed rate mortgage market may have peaked – at least for the time being.

“While the jobs market remains relatively robust and rents rise relentlessly, it will help support demand.

“We shouldn’t get too carried away though.

“Property remains outlandishly expensive, mortgage rates are still sky high, and there’s every chance of more weakness creeping into the jobs market in the coming months.

“The most recent data showed a rise in unemployment and redundancies and a fall in vacancies.

“Job-to-job flows because of redundancy have reached their highest point since the end of last year, and if people start to worry for their jobs, it could mean bigger and more painful price drops across the UK.”

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay