House prices pull back from record highs as market pauses for breath (ONS)

Sarah Coles, personal finance analyst at Hargreaves Lansdown, comments on ONS publication of UK House Price Index for July (and associated reports), which show house prices pulling back from record highs as market pauses for breath.

Key points:
  • Average house prices were up 8% in a year to July, down from 13.1% a month earlier.
  • The average house price dropped back to £265,668 – it’s still up £19,000 in a year.
  • House prices in London were still the highest in theUK, at £495,000.
  • Prices in the North East saw the highest annual growth at 10.8%, while London saw the lowest annual growth of 2.2%.
  • Houses maintained a price rise premium over flats, but the gap has narrowed, with detached properties up 8.9% and flats 6.1%.
  • New builds were up 12%, and previously-owned properties 9.2%.
Sarah Coles says:

“The market paused for breath in July, as we passed the stamp duty holiday deadline, and the rapid inflation of house prices slowed. This was always going to happen to some extent after the distorting effect of a tax break. However, there are no signs of imminent deflation, because the race for space, rock bottom mortgage rates, and the welcome return of first-time buyers are continuing to breathe life into the market.

“We were expecting some of the heat to come out of the market in July. HMRC reported a big drop in house sales, while lenders reported small falls in mortgages agreed for the next few months, and RICS said new buyer demand has dropped back slightly. While we’re not expecting the pace of sales and price rises to pick up again in the immediate future, it’s not likely to come to a dead stop either.

“We still haven’t finished the process of reassessing how and where we want to live in a post-pandemic world. Many of those who were keen to move held back because they couldn’t find anything on the market, and they didn’t want to get embroiled in a bidding war. In a less frenetic market they have more freedom to find the right property for their needs.

“Historically low mortgage rates continue to support the market, because although prices are still far higher than this time last year, lower mortgage rates mean that monthly payments don’t have to be.

“And the rising proportion of first-time buyers will help power movement across the market, as those flats and homes without outdoor space offer them an opportunity to get onto the property ladder, freeing second steppers up for a move somewhere bigger.

“Further ahead, the housing market depends on so many variables that it always has the power to surprise. Low rates and strong demand could continue to support price rises. Alternatively, higher unemployment or new lockdowns could damage confidence in the market. Then again, higher inflation could persist and persuade the Bank of England to revisit interest rates sooner rather than later next year, which would mean buyers face higher mortgage payments, which in turn could hit the market.”


Kindly shared by Hargreaves Lansdown

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