Experts from the banking and housing industries have warned that the UK housing market will face a ‘challenging period’ amid ongoing interest rate increases. According to Halifax, the property market is in for a tough time as the cost of living continues to soar, and the Bank of England continues to try and bring inflation under control.
This comes as data revealed that the average house price in the UK increased to £294,260 in August, but the annual growth rate slowed from 11.8% in July to 11.5%. Nevertheless, according to Halifax officials, the average property price for August set another record and was 0.4% higher than the previous month.
Officials described the monthly growth as ‘modest’ compared to earlier growth, where average monthly increases were logged at 0.9%. In July, house prices fell for the first time in over a year, but August saw a return to growth.
Housing market slowing down
As Halifax officials predicted more challenging times for the housing market, the UK’s biggest housebuilder, Barratt Developments, also confirmed a slowdown in the property market. According to Barratt, the number of homes reserved every week had fallen year on year at the end of August. Reservation levels have also fallen below the levels seen before the Covid-19 pandemic.
The housebuilder said that the situation was partly due to what it described as “heightened macroeconomic uncertainty” along with the limited supply of properties. In addition, Barratt said that it was highly likely that house price growth would moderate.
Kim Kinnaird, the director of Halifax mortgages, said: “House prices have so far proved to be resilient in the face of growing economic uncertainty.”
She added: “Industry surveys point towards cooling expectations across the majority of UK regions, as buyer demand eases, and other forward-looking indicators also imply a likely slowdown in market activity.”
Interest rates in the UK stand at 1.75% following a 0.5% increase in August and a series of 0.25% hikes since December 2021. There is speculation that the next interest rate increase, which the Bank of England will announce next week, could be a super-sized 0.75% increase, putting further pressure on millions of mortgage borrowers.
On top of this, higher living costs and soaring energy prices are taking their toll on household finances. According to Halifax, this will limit the amount people can borrow to buy a property and will also impact confidence levels, reducing the number of potential buyers.
Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, said: “Now the cost-of-living crisis has hit home, and while we may not be forced to face the full impact of rises in energy prices, we’re still having to cope with rampant inflation across the board. At a time of rising rates and higher house prices, this is going to push property out of reach for desperate buyers.”