I have a daily ritual. Even though I’m not currently in a position to buy a large three or four-bedroom house in London, Bristol, Kent or the suburbs of Manchester, I like to scroll through listings online just to see what’s available. I call it “research”, but truth be told, I’m fantasising about the sort of life I could have were I able to afford it.
Over the last two months, this ritual has meant I’ve observed something interesting in Britain’s housing market. More and more homes are marked as “reduced” by their listing agents – sometimes by tens of thousands of pounds.
It seems our dreams are about to become (somewhat) more affordable, because after almost 30 years of wild inflation, Britain’s housing market appears to be slowing down.
While it may be true that house prices rose slightly in July, by 0.6 per cent according to lender Nationwide, prices are nowhere near growing at the rates we became used to in the early 2020s – in 2021, they rose by a whopping 10.8 per cent, for instance.
Today, the annual rate of growth is closer to 4 per cent, according to the Office for National Statistics (ONS). And, in some parts of the country, such as London, prices are falling. In the South West, the market has slowed down so much that price falls could soon be recorded. This is likely to be a continuing trend because of interest rates remaining relatively high, affecting what buyers can borrow.
Wages, on the other hand, are rising and, as things stand, they are rising higher and faster than house prices in most parts of the country, which increases the purchasing power of home buyers.
As ever in Britain, good news for some people is bad news for others.
Britain’s housing market is no longer a friendly place for investors. Stamp duty has gone back up, and even though interest rates have fallen over the past 12 months, average mortgages remain almost double what they were before the pandemic began in 2020.
For sellers, this is painful news. As I’ve reported, people are having to accept lower offers or are finding that their homes are simply not selling. According to listings site Rightmove, asking prices fell by 1.2 per cent in July. That’s the biggest slump for the month in over 20 years. This month, Rightmove reported that sellers are reducing their homes by £11,000 on average in an attempt to entice buyers in a quiet market.
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But for buyers, particularly those who are buying for the first time without wads of cash from the Bank of Mum and Dad (or Gran and Grandad), it could finally signal that housing is going to become more affordable.
Make no mistake: buying a home is still expensive and house prices in the UK remain at near-historic highs. Short of a major economic disaster, we’re not going to see a 2008-style housing market crash which brings prices down to rock-bottom. But it may be that we are witnessing a rebalancing of the market which, if Labour manages to build even a quarter of the 1.5 million homes they promised, could stop buying a home from being the preserve of people from wealthy families.
Broadly speaking, this slowdown is probably a good thing. Runaway house prices in 2021 put Britain’s housing market in a precarious place when interest rates rose sharply during Liz Truss’s brief turn as prime minister in 2022.
But, as ever, there are hidden dangers. According to the Financial Conduct Authority, around 1.3 million homeowners will see their fixed-rate mortgage deals end between April and December this year. Many of them will then be exposed to higher rates and more expensive repayments, which could prompt them to sell. If that happens while the market is still so sluggish, prices may fall further, and some people may have to sell for less than they paid.
This would cause economic instability, which, given how volatile the world is, ought to be avoided.
Keeping Britain’s housing market stable is now a delicate balancing act – we don’t want house prices to fall dramatically, but nor do we want them to rise too much.
In an ideal world, neither will happen. Instead, wages will continue to rise and make buying a home more affordable and realistic for the thousands of young people who are paying well over the odds to rent privately and are therefore unable to save proper deposits.
A few years ago, this modest wish would have seemed impossible, but if wages keep rising, it’s a reality that’s just about within reach in the next few years.
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