According to the estate agents in Berkhamsted, the house prices climbed in May and are hitting an annual spike of 11.2% and the average rise is being pushed to £269,914 as per the reports of the Nationwide Building Society.
As per the latest Nationwide House Price Index, the annual UK house price growth slowed moderately in the month of May in comparison to April when it reached 12.1%. But the prices are still increasing up to 0.9% on a monthly basis even after taking into account the seasonal effects.
The increase in prices in the tenth consecutive month has also kept the annual price growth in double-digits.
Robert Gardner, the chief economist at the Nationwide Building Society talked about the growing headwinds from the restrictions on household budgets due to high inflation followed by a steady increase in the borrowing costs. However, the housing market has sustained an unprecedented amount of momentum.
He also said that we can continue to expect the housing market to slow down gradually. Household finances are expected to remain under pressure due to inflation which is set to reach double digits in case the global energy prices remain high.
According to many estate agencies, the month of May was exceptional for exchanges and completion. Many people in the industry have deduced that it has been the busiest month since the end of the first lockdown due to the pandemic.
She also noted that that in the has been quiet in the front of prospective buyers who are looking forward to purchase homes- “If buyers do drop out of the market, this will reduce demand, and so we may finally start to see some parity with supply, which in turn will slow price growth”
What are some of the factors that determine house prices?
There are a number of factors that determine house prices namely:
Health of the economy:
The rate of unemployment and wage growth both play a huge part in consumer confidence. This again impacts how confident people feel when they move and how much they are willing to pay when they are buying a house.
Rate of interest:
The base interest rate level is set by the Bank of England and if it is comparatively low, people can still afford to spend some more amount on the property as the cost of borrowing will be lowered. This will tend to push the price of houses higher. Again, once the rates start to go up, mortgages become more expensive for people and there is a fall in the price of houses as a lesser number of people choose to move.
Demand and supply:
The price of local houses will be determined by the particular location’s desirability and how many similar properties are being sold in the same area. Let’s take an example- a new housing development is built and this might lead to a reduction of the value of properties nearby when there is greater competition amongst buyers. Again there are some properties which will always command a premium price because of the highly sought-after locality and the limited stock of houses available in the area.
What is happening to house prices?
As discussed earlier, there are several authentic data sources relating to house prices which have shown the monthly indices that give a clear insight on house price changes over the previous month and over the next 12 months. Here is a summary of the published index.
The UK house price index
One of the most accurate price indexes is the UK House Price Index where different house price indices are calculated on the basis of completed sales both in cash and mortgage sales. The data for indexing is sourced from the HM Land Registry and various other government sources. Although it provides a very clear picture of the housing market, there is a considerable lag in the data that is being published. The latest data that is currently available is related to March 2022.
It shows that the average house price in the UK had risen by 0.3% and then swiftly followed by a rise of 0.5% which led to year-on-year growth of 9.8%. All these figures show the underlying price movements and the highest level of growth being marked at 1.2%.
Nationwide House Price Index
The calculation of the Nationwide House Price index is done on the basis of its own data on mortgage approvals. This data shows a strong growth at the beginning of the year and the latest increase of 0.9% which marks the 10th consecutive month of increase in house prices. This increase in price, according to economists as the Nationwide is quite surprising owing to the backdrop of a crisis in the cost of living that is being fueled by low levels of unemployment and a limitation of housing stock thereby the demand being far greater than the supply.
What is the driving factor behind the change in house prices?
The housing market has been quite tumultuous over the period of past 2 years with the pandemic having a direct impact on the price of houses. While there was an initial dip as the country entered into a lockdown in March 2022, a key driver in buying houses was the introduction of a stamp duty holiday on July 8 2020 where buyers could save up to £15,000 on their tax when they are purchasing a house. This stimulus kept driving up the house prices.
What will happen to house prices next is unclear although most commentators are anticipating a quick return to the normal conditions. The increase in the base rate set by the Bank of England is making borrowing more expensive. This might take some of the heat from the market and the rising cost of living is set to subdue it even more. Many households at present are struggling with the deepening of the cost of living crisis and it is only a matter of time before it shows its impact on the price growth. Although the imbalance is still existing between the demand and supply, things are gradually shifting.