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Housing market cools but records 10% annual price growth

Paloma Kubiak
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Paloma Kubiak

Average house prices have risen 10.5% in the year to May, taking them to £289,099, a new record.

This is the eleventh month of consecutive increases, but the pace of growth has begun to slow, according to the Halifax house price index.

At the start of the year, annual house price growth was 9.7%, rising to 11.2% in February but it then started to fall from March (11.1%), then 10.8% in April.

Monthly house prices have gone up by 1%, or £2,857, which compares to 1.2% in April and 1.5% in March. In May last year the monthly price change was 1.3%.

Halifax added that homebuyers would need £10,000 more to buy a flat than they did last year, and a further £50,000 to buy a detached home.

Regionally, nine areas in the UK reported double-digit annual growth, barring Yorkshire and the Humber and London which recorded single-digit growth.

Northern Ireland reported the strongest house price growth at 15.2%, with average house prices emerging at £185,386.

This was followed by the South West at 14.5%, with average house prices of £305,173, and Wales at 13.7%, bringing average prices to £216,120.

London recorded the lowest annual growth at 6.3%, but average house prices were the most expensive at £541,942.

Overall, the average cost of a home rose by 74%, or £123,016 over the past decade, with the strongest growth coming from London at 84.2%, the East of England at 84% and East Midlands at 82.1%.

This means homebuyers in London now need £247,638 more than a decade ago, those in the East of England require £153,930 more and buyers in the East Midlands need £108,116 extra.

Russell Galley, managing director at Halifax, said that while annual growth remained in double digits, it was the slowest rate of growth since the start of the year.

He added that the “imbalance between supply and demand” for properties was the main reason for the climb in house prices.

Galley said: “The housing market has begun to show signs of cooling. Mortgage activity has started to come down and, coupled with the inflationary pressures currently exerted on household budgets, it’s likely activity will start to slow.

“So, there is perhaps one green shoot for prospective purchasers; with overall buying demand down compared to last year, we may be past the peak sellers’ market.”

Market showing signs of slowdown

Tomer Aboody, director of property lender MT Finance, said that the report showed that the market had been reporting month-on-month growth for nearly a year, which was “fuelled by eager buyers looking for more space, while taking advantage of the low interest rate environment”.

He noted that the fact that house prices had risen by 74 per cent in the past decade showed how much the market was running away from first-time buyers.

“With many years of record low interest rates, buyers have been unwittingly pushing up prices due to lack of supply, taking on bigger mortgages to afford more expensive homes,” he explained.

Aboody noted that as mortgage rates were going up with inflation, a slowdown was evident and buyers were less confident about stretching themselves, especially for properties that needed work. This was also partially due to rising costs of material and labour.

Steve Griffiths, sales director at The Mortgage Lender, said that “spiralling inflation, rising living costs, and plunging consumer confidence” was setting the scene for a market slowdown, which was illustrated by buyer demand faltering due to affordability.

He said: “With the rising cost of living showing no signs of abating, it’s important lenders are making clear and considered assessments based on individual’s situations.

“For those looking to set foot on the housing ladder or remortgage, it’s essential they shop around, looking beyond traditional lenders who may offer alternative options that might better help support their property ambitions.”