Despite high mortgage rates, the UK housing market saw a rise in average house prices in June 2024. According to Nationwide, the annual rate of growth increased from 1.3% in May to 1.5%, pushing the average house price to £266,604, up from £264,249 in May.
Market Trends and Statistics
The UK housing market is edging back towards its all-time highs, although prices are still about 3% lower than the peak recorded in the summer of 2022. High borrowing costs have made cash transactions more prevalent, with cash deals around 5% above pre-pandemic levels. However, the total number of transactions has dropped by approximately 15% compared to 2019, and transactions involving a mortgage have fallen by nearly 25%, according to Nationwide.
Impact of High Mortgage Rates
High mortgage rates continue to impact the housing market significantly. Despite a recent key inflation reading hitting the Bank of England’s target rate of 2%, interest rates have been maintained at a 16-year high of 5.25%. There are hints of a potential rate cut in the summer, influenced by ongoing considerations of wage growth and its effect on overall price increases.
Robert Gardner, Nationwide’s chief economist, highlighted the challenges posed by higher mortgage rates:
“While earnings growth has been much stronger than house price growth in recent years, this hasn’t been enough to offset the impact of higher mortgage rates, which are still well above the record lows prevailing in 2021 in the wake of the pandemic. For example, the interest rate on a five-year fixed rate mortgage for a borrower with a 25% deposit was 1.3% in late 2021, but in recent months this has been nearer to 4.7%.”
Housing Affordability
Gardner also noted that housing affordability remains stretched. Currently, a borrower earning the average UK income and buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 37% of their take-home pay. This is significantly above the long-term average of 30%, indicating that many households continue to face financial strain when entering the housing market.
Future Outlook
The current state of the housing market reflects a complex interplay between high borrowing costs and rising house prices. While the market shows resilience with continued price increases, the affordability challenge persists. The potential for a rate cut later in the year could provide some relief, but it remains to be seen how this will impact the overall market dynamics.
