UK house price growth remained at a high level in July despite some negative market conditions, rising by 8.3% year-on-year, Zoopla’s house price index has found.
While there are numerous factors set to cool down the market, like higher living costs, rising mortgage rates and a drop in consumer confidence, it seems this is only impacts the lower end of the market.
Writing in its commentary, Zoopla said: “It may feel surprising that sales market activity is not weakening faster, given increases in the cost of living, rising interests and a drop in UK consumer confidence. High inflation and the rising cost of living are hitting those on lower incomes first and will take longer to impact higher income households.
“Home buyers with mortgages tend to be in higher income bands, compared to lower-income households who are more likely to rent or own their home outright.
“Those on lower incomes spend a greater proportion of their earnings on essentials, including food and energy costs. Prices in these areas have risen the most, and therefore they’re feeling the cost squeeze more acutely.”
However it’s thought that the impact of rising mortgage rates will be felt most acutely in the high-value markets in Southern England, because affordability is already stretched in those areas.
Indeed, Zoopla said demand for homes is weakest in higher-value areas like London, while this trend is set to continue.
So far it seems there are few signs of weaker demand, as Zoopla analysis shows that first-time buyers made up an increased share of all sales in H1 2022 – up to 35% compared to 32% in 2021.
Greater flexibility on where people can work and rising rental costs are said to be supporting first-time buyer demand, with buyers looking further afield for better value for money.
However it seems things will shift going forward, as Zoopla added: “It’s clear UK households are facing a squeeze on incomes and living standards on multiple fronts, which will filter through into housing market activity and house price growth into 2023.
“The primary risk remains in further increases in the base rate in order to control inflation control inflation, which will have a knock-on impact on mortgage rates.
“The higher rates move above 4%, the greater the impact on prices and sales volume and where homeowners have plenty of equity to cushion any future price falls.”
On a regional basis Nottingham saw the highest house price growth (10.9%), followed by Bournemouth (9.3%) and Leeds (9.2%).
Aberdeen saw prices fall by -0.9%, while prices saw comparatively muted growth in Edinburgh (3.8%) and London (4.1%).
Phil Tennant, chief operating officer of new iBuyer UPSTIX, said: “All signs point towards demand tailing off, albeit from the frantic levels seen during the Covid boom. A cooler market in H2 means sale times will be drawn out even further, and some may even struggle to sell, particularly as higher rates make mortgages more difficult to acquire.
“This pressure will be much more acute in high-value markets in the south east, where affordability is already an issue. Landlords in particular who may be looking to realise equity gains made over the last decade or so would do well to move quickly.”
Richard Davies, managing director of Chestertons, said: “One driving factor behind house hunters wanting to move sooner rather than later are interest rates.
“With the Bank of England putting up rates more than once this year, many buyers have established a stronger sense of urgency. Another reason that drives buyer enquiries is that the market is seeing a post-pandemic reshuffle.
“After many house hunters put their search on hold or changed priorities over the past two years, we have since been registering enquiries from families wanting to finally make their move a reality as well as international students, international buyers and office workers who require a pied-à-terre closer to work again.”