House price growth stalls after record breaking period of growth

The latest UK House Price Index from the Office for National Statistics (ONS) reports that average house price growth has slowed, compared to the previous month.

The main points in the ONS report include:

• UK average house prices increased by 7.8% over the year to June 2022, down from 12.8% in May 2022
• The average UK house price was £286,000 in June 2022, which is £20,000 higher than this time last year
• Average house prices increased over the year in England to £305,000 (7.3%), in Wales to £213,000 (8.6%), in Scotland to £192,000 (11.6%) and in Northern Ireland to £169,000 (9.6%)

James Forrester, Managing Director of Barrows and Forrester, comments: “While both the monthly and annual rate of house price growth may have slowed quite considerably, the property market continues to march forward in fine form despite the fact that the rest of the economy is crumbling.

“Of course, many will be quick to flag a reduced rate of growth as a sign that a market crash may be looming, but this amounts to little more than premature waffle and it’s important that we view a slower rate of growth in context with the period of unprecedented boom we’ve just experienced. 

“House prices are still up on a monthly and annual basis and given the instability of the wider backdrop right now, this is proof, if it was ever needed, that property is the safest investment you can make.”

Marc von Grundherr, Director of Benham and Reeves, comments: “The UK economy is sailing head on into some very stormy seas at present, all while the captain remains on shore leave with no replacement yet to take the helm. 

“But despite this, the boat is yet to rock where the property market is concerned and the economic woes of rising inflation, increasing interest rates, and a cost of living crisis continue to bounce off the hull like mere pebbles rather than unforeseen ice bergs. 

“It’s inevitable that the property market was eventually going to slow from the high rate of knots it’s been moving at throughout the pandemic, but we’re yet to see any signs of it sinking and this is likely to remain the case.”

Chris Hodgkinson, Managing Director of House Buyer Bureau, comments: “It very much looks like a matter of when, rather than if, with regard to the UK entering a period of recession and this will further fuel the economic angst that is currently gripping the nation. 

“While the property market has stood firm so far, we can expect a far greater level of uncertainty, coupled with hesitations on both the side of buyers and sellers, to cultivate a much less settled outlook over the coming months.

“For those that do press on with a purchase, the ability to borrow will come at a greater cost and this will impact the price they are willing to pay, which in turn, will force sellers to lower their expectations when it comes to pricing their home for sale.”

Almas Uddin, Founding Director of Revolution Brokers, comments: “It’s a very real possibility that interest rates will rise to between three and four per cent in an attempt to curb the 40 year high in inflation we’re currently seeing. 

“Although this will still be a historically low rate of interest, it will no doubt startle a generation of homebuyers who have known nothing other than a sub one per cent base rate until recently. 

“The result of which is likely to be a reduction in buyer demand and a more modest approach to borrowing, with these factors causing the previously high rates of house price growth seen over the last few years to plateau further.”

Andy Sommerville, Director at Search Acumen, comments: “While the ONS HPI results show another month of house price growth, we can see that this growth has slowed significantly, and, if we look at other HPIs, we should expect negative growth to be reflected in future iterations of the ONS data.

“We are seeing the end of an era of consistent rapid house price growth and the start of a new chapter for the housing market characterised by economic instability. The data foreshadows what is likely to be a period where house price growth stalls or goes into decline as we are finally seeing rampant inflation and reactionary interest rate rises take the heat out of demand, which has been exponentially outstripping supply since the pandemic.

“It is incredibly difficult to predict where the market will go from here. The Bank of England is cautioning of a prolonged recession and, as we currently have a lame-duck government, we don’t know whether future policy interventions to ease soaring living costs might impact market dynamics.

“How deep a recession is, how bad inflation gets and how high interest rates go, will all determine what happens with pricing over coming months. Despite this economic uncertainty, it is unlikely prices will fall over a sharp cliff edge.

“Fundamental structural issues mean we have chronically low housing stock and even if demand falls away significantly this lack of supply will act to support prices. At the same time, while cost of living is now impacting demand, there are still powerful post pandemic lifestyle factors at play that are seeing buyers come to the market as they look to reset based on new patterns of living and working.

“As competing pressures force the market in different directions, it is likely that the push and pull effect of these dynamics will ensure market activity continues at a reasonable level for the foreseeable future despite economic headwinds.

“We may actually see an uptick in transaction volumes if homeowners decide now is the time to sell before prices drop further. All of this means conveyancing caseloads are likely to remain full albeit not at peak levels.

“We also anticipate that they will get increasingly complex as sellers and buyers try to transact in constantly changing economic conditions. Law firms must continue to adopt a technology-first approach to drive efficiencies to manage what is likely to be a difficult next twelve months characterised by large, complex caseloads.

“The case for driving efficiency through digitisation is even more clear in uncertain economic times as the industry faces down a possible recession. The improvements technology can bring by replacing law firm legacy processes could well be essential to keeping the housing market going if we see prolonged recession leading to a period of market decline.”