The UK housing market continues to show resilience following the sharp downturn at the end of 2022, with average property prices rising again in March (+0.8%).

The typical house price is now £287,880, around 2% below the peak reached last August.

On an annual basis, house prices were +1.6% higher than a year ago, slowing from +2.1% in February.

LIS Show – MPU

This is the weakest rate of annual growth in nearly three-and-a-half years (October 2019), having fallen markedly since June 2022’s peak of +12.5%.

However, overall these latest figures continue to suggest relative stability in the housing market at the start of 2023 and align with many other recent industry surveys and data.

This has been characterised by a partial recovery in activity and transactions, especially when compared to the significant drops seen at the end of last year, with latest Bank of England data showing mortgage approvals rising for the first time in six months.

The principal factor behind this improved picture has been an easing of mortgage rates, said Kim Kinnaird, Director, Halifax Mortgages.

The sudden spike in borrowing costs that we saw in November and December has now been largely reversed, and while rates remain much higher than the average of the last decade, across the industry a typical five-year fixed rate deal (75% LTV) is down by more than 100 basis points over the last few months.

It’s also important to recognise that the labour market, a key indicator for house prices, remains strong, with unemployment at a historical low of 3.7%, and pay growth continues to look robust.

Predicting exactly where house prices go next is more difficult.

While the increased cost of living continues to put significant pressure on personal finances, the likely drop in energy prices – and inflation more generally – in the coming months should offer a little more headroom in household budgets.

While the path for interest rates is uncertain, mortgage costs are unlikely to get significantly cheaper in the short-term and the performance of the housing market will continue to reflect these new norms of higher borrowing costs and lower demand. Therefore, we still expect to see a continued slowdown through this year, Kinnaird concluded.

Nations and regions house prices

The average house price edged up in all the UK nations and regions during March.

However, with the exceptions of Greater London and the North East, all areas of the country experienced a slowdown in the rate of annual house price inflation.

Northern Ireland continues to report the strongest annual growth in house prices of +4.9% (average house price of £186,459), followed by the West Midlands (+3.8%, average property price of £248,308).

In Wales the rate of annual property price inflation has slowed to +1.0% (average house price of £213,959).

Similarly in Scotland, the annual rate of growth fell to +2.3% (average property price of £199,853).

Average house prices in London are up very slightly on this time last year (+0.1%) with the typical property now costing £537,250.

Average house price Monthly change Quarterly change Annual change
£287,880 0.8% -0.4% +1.6%

Housing activity

HMRC monthly property transaction data shows UK home sales decreased in February 2023.

UK seasonally adjusted (SA) residential transactions in February 2023 were 90,340 – down by 4.1% from January’s figure of 94,240 (up 1.8% on a non-SA basis).

Quarterly SA transactions (December 2022-February 2023) were approximately 9.2% lower than the preceding three months (September 2022 – November 2022).

Year-on-year SA transactions were 18.2% lower than February 2022 (18.2% lower on a non-SA basis). (Source: HMRC)

Latest Bank of England figures show the number of mortgages approved to finance house purchases increased in February 2023, by 9.8% to 43,536.

Year-on-year the February figure was 37% below February 2022. (Source: Bank of England, seasonally-adjusted figures)

The February 2023 RICS Residential Market Survey results show key metrics remain negative but less so than previously.

New buyer enquiries returned a net balance of -29%, up from -45% previously. Agreed sales had a net balance of -26% (-36% previously) and new instructions returned a net balance of -4% (previously -12%). (Source: Royal Institution of Chartered Surveyors’ (RICS) monthly report)

Jeremy Leaf, north London estate agent and a former RICS residential chairman, comments:

“After three successive months of unchanged annual growth, this respected and comprehensive report confirms what we’re seeing on the ground – falling mortgage rates and expectations that the worst for the economy may be behind us have tempted buyers and sellers out of hibernation.

At the sharp end, sales are still being agreed but are taking longer, not least because there’s more choice of stock.

Looking forward, we don’t expect to see a dramatic change as we enter the key spring period for the housing market.

However, buyers and sellers utilising excess savings made during the pandemic, seeking smaller three and four-bed houses in particular, are certainly leading the way.”

CEO of Alliance Fund, Iain Crawford, commented:

“Further positivity for the UK property market as we continue to move away from the uncertainty spurred by September’s mini budget and towards what is a far more positive outlook for the year ahead.

While the higher cost of borrowing will continue to have an influence, buyers are returning and while they are doing so at a more measured pace, this uplift in market activity is now starting to blossom into green shoots of positive house price growth.”

Director of Benham and Reeves, Marc von Grundherr, commented:

“Those of us on the ground have seen a sustained level of market activity since the start of the year and it was only a matter of time before this initial interest started to restimulate the market, reversing the reduction in house prices seen during the latter stages of last year.

Homebuyers may not be moving with the same gusto seen during the pandemic boom, but stability has returned and the boat has well and truly steadied.”

Managing Director of Barrows and Forrester, James Forrester, commented:

“It’s high time that those spouting prophecies of a property market crash and a 40% reduction in house prices are held accountable.

Not only has the market weathered the storm of higher borrowing costs and the cost of living crisis, but house prices have already started to rebound following just a few short months of marginal decline.”

Managing Director of House Buyer Bureau, Chris Hodgkinson, commented:

“The expectation was that 2023 would see an end to the downward trend of house price decline that followed last September’s mini budget.

This seems to have rung true far earlier in the year than many expected although the landscape remains fairly uncertain.

An eleventh consecutive interest rate hike is sure to further dampen the enthusiasm of the nation’s homebuyers and while it shouldn’t deter them completely, it’s likely we will see more incremental house price gains over the year ahead, rather than the record high rates of previous years.”

Avinav Nigam, chief investment officer of real estate investment platform IMMO, comments:

“While house prices have risen gently over the past month, they continue on a downward trend over the course of the last quarter.

Consumer confidence may be increasing with positive news of mortgage rate stability, but improvement in the sales market is not aiding a growing rental housing crisis.

With fresh reports of tenants being further priced out of cities, there is an ever increasing need for ‘patient’ capital, such as pension funds, to start investing in the rental market, creating alternative options for Britain’s growing renter population.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, comments:

“Annual price growth remains remarkably consistent as the market gradually returns to something closer to what we were used to pre-pandemic.

Lenders continue to jockey for position and business with a number reducing the pricing of their cheapest five-year fixes.

Even if there is another base rate rise to come, there is a growing expectation that rates are close to their peak and if inflation falls significantly, as forecast, the outlook will be much more encouraging for borrowers.”

Ben Woolman, Director at Woolbro Group, commented:

“Sellers should temper their expectations going into the traditionally summer months this year.

While the economic reality has not fully caught up with the UK housing market, it is certainly now nipping at its heels.

Higher mortgage rates, the cost of living crisis and an increase in choice for would-be buyers means sellers will have to be more flexible on asking prices this summer.

However, inflation is expected to ease off in the coming months, meaning sellers who aren’t in any desperate rush should consider their options carefully.

A lower rate of inflation should prompt the Bank of England to lower the base rate which, in turn, should prompt mortgage lenders to lower interest rates on their products.

While this will see the return of greater buyer borrowing power, demand from first-time buyers will still undoubtedly be impacted by the end of the Help to Buy scheme.

First-time buyers are grappling with higher energy, rent and grocery costs — making it especially difficult for many to put money aside each month towards a deposit on their first home.

It really is time that the government levels the property playing field.

The crucial first step to securing a better deal for first-time buyers would be to restart the conversation around reforming Britain’s outdated planning system.”

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