Are prices in England & Wales still rising?
The average price paid in both cash- and mortgage-based transactions for a home in England and Wales in December 2022 was £380,450, some £1,900 higher than in November, according to the latest e.surv Acadata House Price Index. House prices in England & Wales rose by 0.5% in December, the same rate seen in November.
Acadata analysts John Tindale and Peter Williams noted that while this rate may not be particularly significant in the context of the movement in prices over the last two years, it remains positive, which may come as a surprise to those who are keen market watchers. They said this is likely to be a consequence of the index’s definition of when a sale takes place and establishes the completion price, coupled with the time lag between the different stages.
On an annual basis, the rate of price growth has slowed from the peak rate of 12.9% in August 2022 to 7.8% by the end of December. This rate has also fallen from November’s 9.2%. The analysts said market expectations are that the rates of growth will continue to fall and indeed may become negative. “Our data this month shows a slowing rate of growth, which will surprise no-one, but nevertheless is positive,” Richard Sexton, director at e.surv, commented. There are a couple of reasons why our findings are noteworthy. One is that we use all completion data for the period, from the ONS which includes cash sales and is the final price paid – as opposed to a price agreed earlier in the process such as at mortgage approval stage and therefore which might fluctuate subsequently. “But the other point to be made is that the relative attractiveness of property remains in comparison to other asset groups over the longer term. Housing as an asset group is still outperforming most other investments. It is very likely that whatever the economic weather, the lack of supply will continue to underpin the relative strength of UK housing.”
The e.surv Acadata House Price Index also showed the North East having the largest increase in monthly house price growth among the regions, from 10.1% in the previous month to 13.4%. The East and West Midlands remain the top two regions in terms of having the highest annual rates of price growth, at 14.1% and 13.7% respectively.
By contrast, Greater London has the lowest annual growth rate of just 1.5%, although 21 of the 33 London boroughs saw prices rise on an annual basis. The most expensive inner-city areas recorded falling values – impacting eight of the top 10 boroughs ranked by price. Over the last 12 months, there has been significant change in the ranking of the 33 London boroughs, as measured by their average property values.
Property sales fall-throughs hit five-year high
The number of fall-throughs hit a five-year high during the third quarter of 2022, research suggests.
Analysis of TwentyCi fall through data by the House Buyer Bureau (HBB) found there has been a sharp increase in both the number of property transactions falling through as well as the cost associated with these fall throughs. The quick buy firm analysed the number of transaction fall throughs across the UK property market, what this means in terms of the average cost of a fall through and what the total cost to the property market is as a result.
Its latest index shows that in third quarter of last year, 90,188 transactions are estimated to have fallen through, a 15.6% increase on a quarterly basis and a 3.6% uplift versus this time last year. This is also the highest quarterly number of fall throughs recorded over the last five years.
A combination of runaway inflation and increasing house prices have pushed the average cost of a property transaction collapse to £3,337, the House Buyer Bureau said.
As a result, it estimates that homebuyers and sellers were hit by a total estimated cost of almost £301m as a result of their transactions falling through during the period. This total cost is not only 18.7% up on the previous quarter, but also 16.3% on an annual basis. The brand is, however, estimating that the total number of fall throughs seen in 2022 will still be 6.7% down on 2021.
However, this is largely attributed to the fact that the first two quarters of the year saw a far lower level of transactions falling through. Chris Hodgkinson, managing director of House Buyer Bureau, said: “We’ve seen a consistent increase in the number of property transactions falling through in recent years and despite a fairly settled start to 2022, the latest data shows that the number of sales collapsing hit a five year high in the third quarter of 2022. “This is almost certainly due to the turbulence that came via the mortgage sector in September, as lenders pulled a raft of products and increased mortgage fees in reaction to the Bank of England’s aggressive attempts to curb inflation via a string of consecutive interest rate increases. As a result, many buyers found that they could no longer afford the cost of borrowing which has led to swathes of property sales falling by the wayside during the second half of last year. “Unfortunately, we saw a further hike to the base rate come in December and so the likelihood is that this increased level of property fall throughs will not only be apparent within the final quarter of 2022, but it’s likely to be maintained into 2023.”
Rents to rocket by 20% as landlords pay higher mortgage costs
A grim prediction from the Bank of England is forecasting that rents will rocket by 20% because landlords could be paying up to £4,000 more for their buy to let mortgage in 2023. The warning comes from the bank’s Financial Policy Committee which says that the monthly repayment facing landlords will rise by £175 – but for a fifth of landlords, the rise could be more than £300.
This rate hike could also see a mass sell-off of rented homes by landlords – pushing house prices down. The report makes clear that landlords look set to pass on their higher costs to tenants which will see rents rising by around 20%.
Rising mortgage rates are leading to house prices falling
In its report, the committee says that rising mortgage rates are leading to house prices falling after years of substantial growth. The committee highlights that buy to let mortgage holders are also likely to influence house prices if they decide to sell, but there is some uncertainty about how these prices will react. There are currently two million BTL mortgages outstanding, which is around 8% of the housing stock. However, 85% of BTL mortgages are interest-only so there could be a ‘greater proportional impact’ from a rate rise.
Landlords will need to boost their rental income by 20%
The report highlights that landlords will need to boost their rental income by 20% to meet higher mortgage rates and this means that rents will rise as landlords pass on their costs. Doing so will, the report says, lead to a knock-on effect with renters defaulting on their unsecured credit deals to meet higher rents – and they will then cut their spending sharply which will then ‘amplify the economic downturn’.
The report goes on: “Some landlords might choose to sell properties rather than bear the greater costs of mortgages, and evidence from the Bank’s Agents suggests that a growing number of buy-to-let landlords are choosing to sell properties, due in part to rising borrowing costs. “If significantly large numbers of buy-to-let mortgagors choose to sell properties, this could place additional downwards pressure on house prices.”
4 million households are facing higher mortgage rates
The bank is also warning that up to 4 million households are facing higher mortgage rates which could see them paying £250 per month more on their mortgage. That’s when the average monthly mortgage repayment will rise to £1,000 from £750 next year. The report highlights that half of owner-occupier mortgages could be exposed to increasing interest rates over the next 12 months but banks are expected to offer help to struggling families. However, because of the pandemic’s rapid rise in house prices, most mortgage holders will escape being dragged into negative equity and households will also face other financial pressures with rising bills until the end of 2023.