UK House Prices Continue to Climb: A September Overview
In September, the UK housing market demonstrated resilience, with house prices rising for the third consecutive month. According to Halifax, one of the UK’s largest mortgage lenders, property values increased by 0.3% in September, mirroring the growth seen in August. Over the past year, house prices have surged by 4.7%, marking the strongest annual inflation rate since November 2022. This upward trend has brought the average UK home value to £293,399, just £100 shy of the record high set in June 2022.
The Context of Recent Price Increases
The recent price increases can be viewed as a recovery from the significant disruptions caused by the mini-budget introduced by former Prime Minister Liz Truss and then-Chancellor Kwasi Kwarteng. This budget led to rising borrowing costs and a sudden slowdown in the housing sector, which had previously been buoyed by a post-lockdown surge in demand. Amanda Bryden, head of mortgages at Halifax, cautioned against interpreting these gains as a full recovery. While the typical property value has risen by approximately £13,000 over the past year, Bryden noted that this increase primarily reflects a rebound from losses incurred in the previous 12 months. Looking back two years, prices have only increased by a modest 0.4%.
The "Race for Space" and Its Aftermath
The housing market initially surged after the end of the first lockdown, as buyers sought larger homes and outdoor spaces, a phenomenon dubbed the “race for space.” However, the market faced a significant downturn following the mini-budget in September 2022, which stifled demand due to soaring interest rates and increased mortgage costs. As interest rates have gradually begun to fall and the cost-of-living crisis shows signs of easing, buyers are returning to the market, signaling a potential shift in momentum.
Improving Market Conditions
Bryden highlighted that market conditions have steadily improved over the summer and into early autumn. With strong wage growth and declining interest rates, mortgage affordability has begun to ease, boosting confidence among potential buyers. The number of mortgages agreed upon has increased by over 40% in the last year, reaching its highest level since July 2022. This resurgence in buyer activity suggests a renewed optimism in the housing market, despite the challenges that still exist.
Regional Variations in House Price Growth
While the overall trend is positive, there remains a stark north-south divide in house price growth across the UK. In the northwest of England, prices have risen by 5.1% over the past year, while Yorkshire has seen a 4.3% increase. In contrast, eastern England, which includes commuter counties like Hertfordshire and Essex, has experienced a more modest rise of just 2.3%. London, the UK’s most expensive region for housing, has seen prices increase by 2.6% year-on-year, with an average value of £539,238, still below its peak of £552,592 reached in summer 2022.
Northern Ireland stands out as the region with the fastest house price growth, boasting a remarkable 9.7% increase over the past year. Meanwhile, Scotland has experienced a year-on-year price inflation of 2.1%. These regional disparities highlight the varying dynamics at play within the UK housing market.
Affordability Challenges and Future Predictions
Despite the positive signs of recovery, affordability remains a significant challenge for many potential buyers. Bryden noted that while mortgage rates are retreating, the overall affordability of homes continues to be a concern. As a result, she predicts that any further increases in house prices over the next 18 months will be modest.
Conversely, some experts hold a more optimistic outlook. Ashley Webb, a UK economist at Capital Economics, believes that the Bank of England may reduce interest rates more quickly than anticipated next year. This could lead to higher-than-expected house price growth, with Webb projecting an above-consensus increase of 5% in 2025.
The Road Ahead for the Housing Market
As the UK housing market shows signs of recovery, the coming months will be crucial in determining whether this upward trend can be sustained amid ongoing economic challenges. With fluctuating interest rates, regional disparities, and affordability issues still in play, the landscape remains complex and dynamic. The interplay of these factors will ultimately shape the future of house prices in the UK, making it an area to watch closely for both buyers and investors alike.