Statistics office also provides a glimpse of what's happening in the rental market.
The average house price in the UK increased by 0.6% to £290,000 in July, but price growth slowed down from 1.9% in the previous month, the latest figures published by the Office for National Statistics (ONS) have shown.
July’s average UK house price was £2,000 higher than 12 months ago, but £2,000 below the recent peak in November 2022. In the 12 months to July 2023, the house price average increased by 0.6% to £309,000 in England and by 0.1% to £192,000 in Scotland, while it fell by 0.1% to £216,000 in Wales. In the year to the second quarter of 2023, the average house price climbed by 2.7% to £174,000 in Northern Ireland.
The UK House Price Index for July 2023 also revealed that among all English regions, the North East saw the highest annual growth in house prices at 2.7%, while the South West saw the lowest at -1%.
“Annual house price inflation, measured using final transaction prices, slowed in July, with negative annual inflation in the South West and London,” said Aimee North, head of housing market indices at the Office for National Statistics.
Jonathan Samuels, chief executive at Octane Capital, commented that "not only had house prices remained impervious to the wider economic landscape, inflation had also fallen by a greater degree than expected. The Bank of England may well choose to keep the base rate frozen at 5.25% as a result,” he added. “This will be welcome news for the nation’s homebuyers who have already started to benefit from many lenders reducing their fixed rate offerings this week in response to a drop in swap rates. Looking forward, further reductions to mortgage rates could be on the cards as the economic picture improves, although it’s too soon to say for sure.”
Tony Hall, head of business development at Saffron for Intermediaries, was not surprised at the house price figures, given the affordability challenges that existed in the market. He said “However, the downward trend in house prices is far less significant than some analysts were predicting at the beginning of the year, and recent reductions in mortgage rates could stimulate increased activity in the market in the coming weeks and months. Scotland and parts of the North West are also giving us reason to smile, with the housing market in these areas showing notable resilience through a challenging period. That being said, with interest rates likely to rise further before the end of the year, affordability will remain a key challenge for those looking to buy, or build, a home. The best approach for potential borrowers, particularly those who believe their financial circumstances might traditionally prohibit them from accessing the mortgage market, is to seek independent financial advice to find a product most suited to them.”
Rents up by 5.5% in August
In the UK private rental market, prices paid by tenants rose by 5.5% in the 12 months to August, up from 5.3% in the 12 months to July.
ONS, in its Index of Private Housing Rental Prices report for August 2023, revealed annual private rental price increased in all the UK countries and English regions. Rents grew by 5.4% in England, by 6.5% in Wales, and by 6% in Scotland. Within England, London had the highest annual percentage growth in private rental prices at 5.9%, while the North East and South West saw the lowest at 4.8%.
Annual inflation for UK rental prices continues to rise, setting a record high for the 17th month in a row. Wales is seeing the largest annual price growth nationally, while London rents continue their record-breaking surge.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, confirmed that these rental figures reflected what they had been seeing on the ground. “A shortage of stock is continuing the upwards pressure on rents at a time when students are adding to tenant numbers,” Leaf pointed out. The burden of higher mortgage rates, as well as tax and regulatory issues are persuading landlords to quit the sector which is not helping keep rents in affordable territory. However, we have noticed the difference between the rents charged on new tenancies and those who are renewing existing arrangements as tenants are reaching an affordability ceiling. Landlords recognise the importance of reliable, long-term tenants rather than maximising their returns unless, of course, their costs are getting out of hand.”
UK house prices – latest revealed by Rightmove
Experts anticipate an autumn bounce after a summer lull.
A quiet month for the UK housing market has seen the average asking price of newly marketed properties increase marginally by 0.4% to £366,281, according to property listing platform Rightmove. Prices bounced back from the 1.9% drop in the previous month, though property prices typically increase at this time of year, with Rightmove recording price growth in all but three of its September reports since 2001.
However, house price growth fell to -0.4% year on year – the biggest drop since March 2019, with 36.3% of properties currently for sale reducing their prices by an average of £22,700.
Tim Bannister, director of property science at Rightmove said “it’s been a slower than usual August, so all eyes will be on market activity over the next few weeks, which will set the trend for the rest of the year. The combination of 14 consecutive Bank of England interest rate rises and many buyers and sellers still catching up on lost pandemic holidays has contributed to a bigger than expected summer lull, though we still anticipate an autumn bounce.”
Tomer Aboody, director of property lender MT Finance, agreed that "the non-stop interest rate rises over recent months had made this lull inevitable. The government and Bank of England have forced the market into hibernation,” he said. “At some point the rate rises have to stop, allowing the market to breathe and take stock. This will, in turn, lead to a return of some confidence, which will translate into more transactions. Let’s hope this comes sooner rather than later.”
“Fortunately, in recent weeks, an expectation that interest rates may be at or near their peak, coinciding with a return from summer holidays for many, has prompted a welcome albeit modest uptick in appraisals, listings and buyer interest,” added Jeremy Leaf, north London estate agent and a former RICS residential chairman. “This is particularly the case in those properties offered by motivated sellers.”
The latest Rightmove House Price Index also revealed a lingering issue in supply with the number of available properties down by 7% on 2019. The number of new properties coming up for sale was 6% lower than the average of the last 10 years, though buyer enquiries remained stable, down just 1% on 2019.
Rightmove said economic conditions, holiday distractions, and a reduction in fresh stock contributed to the number of sales agreed falling further, from 15% down on 2019 in July, to 18% down in August.
“As we enter a key selling season, more people who have been thinking about what they need from a home and where they want to be living next year and beyond are taking action and coming to market,” Bannister said. “This has helped to improve buyer choice, especially for those looking for larger homes, which also means that new sellers in the middle and upper sectors need to be extra careful not to set their price expectations too high. Plenty of sales are being agreed for properties that are priced at the right level, and those that are selling are still taking five days less than at this time in 2019. We’re also seeing the number of fall-throughs decline as market conditions and mortgage rates stabilise.”
Buyers looking for homes that can create an income
Homeowners are increasingly looking to properties that can either boost income or to offer a better work/life balance – without the need to downsize, an agent claims.
Amanda Ake of Stacks Property Search says more buyers of all ages, from young families to the retired, are looking for properties that they can rent out on short term lets while they spend their time elsewhere. She says “this may be for a lifestyle choice, enabling extensive travel; while for others it’s about generating income. Working from home is changing the shape of working lives allowing many of those who used to be chained to a 9-5 office routine to work from pretty much anywhere that has decent wi-fi. Working from home doesn’t mean working from home, it means working from anywhere with functioning wi-fi. Digital nomads are a growing and happy tribe.”
She said the options for homeowners are wide ranging, adding “some choose to do home swaps, some to head off in campervans, while others may opt for an annexe in the garden that they move into when they have paying guests in the main house. For some it’s about financing more extensive and lavish holidays; they’ll rent their house out and take the whole family off for the months of July and August. Others whose children are at boarding school may want to keep the family home for the holiday months, but take off to warmer climes during term time, or pack themselves up into a campervan and explore the UK.”
Ake said age is no barrier either.
She added “we’re talking to people both pre and post-family, and young, partially or fully retired. There are lots of buyers who are moving out of London, wanting a dream country home, but with the advantage of making some serious extra income when they travel. Buyers who are looking for a property that’s going to give them this flexibility need to be forensic in terms of getting the property right. It needs to be robust and easy to run. Creaky and quirky properties are likely to be a headache if you’re on the other side of the world when the roof starts leaking or the boiler gives up. They should also ask themselves if they’re honestly the kind of person who won’t mind strangers in their home. It sounds obvious, but it’s not for everybody.”