House prices rise 8.3% in July, but higher rates will slow market in H2: Zoopla

The South West and Wales made the strongest showing in the period, with annual house price growth running at 10.6% in both regions, says the property website’s July House Price Index.

Demand for homes in London continues to lag the rest of the country “due to pandemic and affordability-related factors”, with annual price inflation, at 4.1%, less than half the UK average.

The survey says that demand is “registering the usual summer slowdown and underperforming last year”, but remains above the 2017-2022 five-year average.

But it adds: “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.”

The index points out that its latest data “shows all households have been adjusting spending patterns, cutting back on non-essential areas of spend, while those on higher incomes have more room for manoeuvre”.

It says that rising interest rates will “impact demand over the second half of the year”.

In January 2022, new mortgage rates were still ultra cheap at less than 2%, the report points out.

But it adds: “This has now jumped to 3.5% and is set to reach 4% as we move into the autumn. This level of mortgage rates is still low by historic standards, but homebuyers have become used to very low mortgage rates. This means any reversal is likely to have some impact on demand, especially when combined with cost-of-living pressures.”

The index says that first-time buyers are among “the most sensitive” groups affected by rising rates.

It says that the move from a 2% mortgage rate to 4% means the average FTB will need an extra £12,250 in income, compared to when rates were lower. In London, the highest value market, this jumps to over £34,500.

The report adds: “So far, t. are few signs of weaker demand and our analysis shows FTBs made up an increased share of all sales in the first half of this year, up to 35% compared to 32% in 2021.”

It says greater flexibility on w. people can work and rising rental costs have so far supported FTB demand, with buyers looking further afield for better value for money.

But the survey adds: “We expect FTB behaviours and buying patterns to shift further in the second half of the year in response to higher costs and the increasing possibility of FTBs being priced out of the market.”

Zoopla director of research Richard Donnell says: “The housing market has been resilient to the rising cost of living so far. The new energy price cap will add to the pressure facing households, especially those on lower incomes.

“We see the recent jump in mortgage rates having a greater impact on housing market activity and prices moving ahead. FTBs on lower incomes, those looking to trade up using a bigger mortgage and buyers in the southeast of England will all feel the greatest impact on affordability.

“We expect a growing number of households to continue to re-evaluate their homes as a result of ongoing pandemic factors and with further impetus from the rising cost of living. This will support overall sales numbers but the rate of price inflation will continue to slow.”

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