UK house prices set for big slowdown after weak January - Halifax
British house prices are expected to slow “considerably” over the next 12 months as households face a cost-of-living squeeze, mortgage lender Halifax said on Monday.
Prices in January rose 0.3% month on month, the slowest pace since last June, in a further confirmation that the post-Covid pandemic recovery is running out of steam as soaring consumer prices dampen sentiment. Year on year, prices were 9.7% higher.
"This situation is expected to become more acute in the short-term as household budgets face even greater pressure from an increase in the cost of living, and rises in interest rates begin to feed through to mortgage rates," said Halifax managing director Russell Galley.
He added that it remained likely that the rate of house price growth “will slow considerably over the next year" and, despite affordability at historically low levels, price rises were outpacing wage growth with younger buyers also struggling to raise deposits.
Buyers face much tougher conditions, with the Bank of England raising interest rates last week for the second time in two months as rampant inflation hits a 30-year high. UK finance minister Rishi Sunak has added to the pain with a manifesto-busting tax hike set to kick in from April 6.
Analysts at the EY ITEM Club said the slowdown "may be a sign of things to come".
"This year won’t see a boost to prices from the stamp duty holiday which ran through much of 2021. To the extent the tax holiday brought forward purchases, its after-effects may drag on housing market activity in the near term," they said, and forecast two more rate rises this year.
"The rising cost of living faced by households from higher inflation and tax rises mean it’s likely that fewer people will be able to afford to borrow the necessary amount they need to buy at higher mortgage rates."
However, while house price growth will probably cool this year, EY analysts did not expect prices to fall, as savings built up by households during the pandemic expected to offset the income squeeze.
"With around 80% of the stock of UK mortgage debt at fixed rates, most mortgage holders are well insulated from increases in mortgage rates in the short term."