House prices last month were 1.1% higher than the same time last year, following a 0.4% annual increase in March.
Amanda Bryden, head of mortgages at Halifax, stated that the housing market is «finding its feet in an era of higher interest rates.» She noted that while borrowing costs are higher than a few years ago, homebuyers are gaining confidence from a period of relative stability, with improved activity and demand.
However, Bryden also pointed out that affordability constraints remain a significant challenge for both new buyers and those coming off fixed-term deals. Recent weeks have seen mortgage rates increase again, primarily due to expectations of slower Bank of England base rate cuts.
First-time buyers and homeowners looking to remortgage are still struggling to find affordable deals. Halifax reported that house prices have been largely flat this year, with only a small rise in April. The increase in mortgage rates is mainly due to the anticipated reduction in the number of interest rate cuts by the Bank of England this year.
Despite this, estate agent Savills forecasts that house prices will rise by over 20% by the end of 2028. Savills upgraded its forecast based on expectations of stronger UK economic performance and steady interest rate cuts.
The Bank’s latest interest rate decision is expected to be announced on Thursday, with most analysts predicting it will remain at 5.25%. Initially, many analysts had anticipated multiple rate cuts in 2024, starting in June. However, slower-than-expected inflation declines have delayed these forecasts. This shift has impacted the mortgage market, causing rates to rise again.
Halifax’s house price data, which is based on its own mortgage lending and excludes cash buyers and buy-to-let deals, shows that cash buyers make up about a third of housing sales. According to the lender, Northern Ireland experienced the largest price increase among the nations and regions, with a 3.4% rise from the previous year. In England, the North West saw the biggest rise at 3.3%, while price declines were mainly in the south.
Sarah Coles, head of personal finance at Hargreaves Lansdown, noted that while house prices appear to have stabilized, a closer look reveals a «wonky» market, with prices rising in the north and steadily dropping in the south due to persistently high and increasing mortgage rates. The average two-year fixed-rate mortgage is currently at 5.93%, up from around 5.8% at the end of March. Coles pointed out that although the rise isn’t dramatic, it is still unwelcome, especially when homeowners had expected mortgage rates to fall. Higher mortgage costs have had a more significant impact in the pricier southern regions, reducing demand and causing property prices to level off or decline.
Halifax stated that it anticipates property prices to experience modest growth in 2024 if interest rates are cut later in the year. Savills, on the other hand, forecasts that house prices will grow by 2.5% this year, an improvement from the 3% decline predicted in November last year. By the end of 2028, Savills expects house values to have risen by an average of 21.6%, up from its previous estimate of 17.9%. This new forecast suggests that the average house price will increase by £61,500 between 2023 and 2028, reaching £346,500.
Lucian Cook, head of residential research at Savills, attributes this positive outlook to improving economic performance and the steady reduction of the base rate. Cook believes that these factors will create greater potential for growth starting in 2025.
