UK house prices continue to rise, edging closer to their June 2022 peak, following a modest interest rate cut. According to the latest data, house prices increased by 0.3% in August, marking the second consecutive month of growth. On an annual basis, prices have risen by 4.3%, the fastest rate of annual growth since November 2022. The average home now costs £292,505, up by £920 from the previous month.
Regional variations show strong growth in the North West
While London remains the most expensive area for property, with an average price of £536,056, it saw a relatively modest annual increase of 1.5%. In contrast, the North West experienced the strongest growth in England, with house prices up by 4%, demonstrating significant regional variation in the property market.
Sarah Coles, head of personal finance at Hargreaves Lansdown, noted, “The rate cut spurred buyers into action, pushing prices up to within touching distance of their 2022 peak.” She explained that although the interest rate reduction wasn’t transformative, it led to cheaper mortgage deals and more buyers entering the market. “Mortgage approvals were already rising in July, hitting their highest point for almost two years,” Coles added. This trend, she predicts, will continue in the coming months.
High mortgage rates challenge first-time buyers
Despite this positive growth, high house prices and relatively elevated mortgage rates remain a barrier for many, particularly first-time buyers. Coles pointed out that rising property values, coupled with current mortgage rates, may price some people out of the market. “There’s still a mountain to climb in building a deposit, but you don’t have to go it alone,” she said, encouraging buyers to consider government schemes such as the Lifetime ISA, which offers a £1,000 top-up on savings for those aged 18-39.
For those looking to enter the market, the small reduction in interest rates has provided some relief. The average two-year fixed mortgage rate dropped from 5.77% to 5.54%, according to Moneyfacts data, offering slightly more affordable borrowing options.
Investors take note of potential tax changes
Buy-to-let investors, however, may be approaching the market with caution due to speculation about potential changes to capital gains tax in the upcoming Budget. Coles remarked, “We’re likely seeing some investors trying to part with investment properties ahead of any potential tax hike.” This shift could temper demand in the rental property sector, though for now, overall buyer interest remains strong.
Nathan Emerson, CEO of Propertymark, echoed this optimism, stating, “It is reassuring to witness the market moving forward from what has been a very fluid few years.” Emerson is confident that the housing market will continue to grow as inflation and interest rates stabilise. However, he stressed the importance of the UK government accelerating its housebuilding programme to address the ongoing supply-demand imbalance.
Optimism for continued market growth
Foxtons CEO, Guy Gittins, noted that the rise in house prices was driven by increased buyer activity, which has gathered pace since the general election earlier this year. “The patience of UK home sellers is now being rewarded,” he said, adding that buyer confidence has surged following the interest rate cuts.
Similarly, Yopa’s CEO Verona Frankish expressed confidence in the market’s trajectory, citing the August price growth and renewed buyer confidence. She stated, “With further interest rate cuts expected before the year is out, we anticipate that market activity and house prices will continue to improve over the coming months.”
As the property market continues to recover, there remains cautious optimism among both buyers and sellers. Yet, with high mortgage rates and speculation about future tax increases, the landscape for the rest of the year remains unpredictable.
For UK landlords and property investors, the focus may now shift to how government policies in the upcoming Budget will impact the housing sector. Investors will need to weigh up these potential changes against the ongoing recovery of the market. While buyer confidence is up and interest rates are on a downward trajectory, there’s still plenty of uncertainty on the horizon.
