UK house prices hit record high but growth slows as mortgage rises and cost of living bite

Home prices increased by 1% in May, the eleventh consecutive monthly rise

Estate agent signs in London. The average house price in the UK stood at £289,099 in May. Reuters

The average house price in the UK hit a record high of £289,099 ($363,486) in May, but the market is showing signs of cooling, according to the Halifax House Price Index.

Across the UK, the typical property value increased by £2,857 a month in May. An imbalance between supply and demand for properties remains the primary reason driving the climb in house prices, the report said.

“The average cost of buying a home in the UK is up 1 per cent, or £2,857, on last month, and has now risen for 11 consecutive months,” said Russell Galley, managing director of Halifax.

“Annual growth also remains in double-digits, at 10.5 per cent, although this is the slowest rate of growth seen since the start of the year.”

Alice Haine, Personal Finance Analyst at investment platform Bestinvest, said the latest data adds to the mounting evidence that house price growth is being affected by the uncertainty facing the wider economy.

“Yes, prices have still risen 1 per cent on the month — marking the eleventh successive monthly increase — and yes, prices are up by 10.5 per cent on the year, keeping annual price growth in double digits, but this is the slowest rate of growth since the start of the year and shows the challenges ahead cannot be ignored.

“With mortgage rates surging — following four consecutive interest rate rises from the Bank of England since December and further hikes expected this year — and inflation of 9 per cent eating into real incomes, it is only natural that prospective buyers may take a pause before plunging into the market right now.

“Add in the cost-of-living crisis and the fact fuel prices are now at record highs [petrol prices set a new average record of 178.5p per litre on Tuesday], and the cost of buying a home may deter those already struggling to meet their monthly obligations.”

Halifax's Mr Galley said: “For house-hunters, the extent of the impact of property price inflation continues to be linked to the type of home they are looking to buy.

“Compared to May last year, you would need around £10,000 more to buy a flat, but an additional £50,000 for a detached home.

“This clearly creates a knock-on effect for those looking to make their first home move, as the rungs on the housing ladder have become increasingly wider. However, the housing market has begun to show signs of cooling.

“Mortgage activity has started to come down and, coupled with the inflationary pressures currently exerted on household budgets, it is likely activity will start to slow.

“So, there is perhaps one green shoot for prospective purchasers — with overall buying demand down compared to last year, we may be past the peak sellers’ market.”

Northern Ireland had the strongest annual house price inflation in May, with prices rising by 15.2 per cent.

The south-west of England also recorded a strong rate of annual growth at 14.5 per cent.

In Wales, house prices jumped by 13.7 per cent annually, pushing the average house price there to a record £216,120.

Only Yorkshire and the Humber, Scotland and London recorded annual house price inflation below 10 per cent in May.

In Scotland, house price growth continues to “underperform” relative to the UK average, according to Halifax, with annual inflation at 8.3 per cent.

Ten years ago, annual house price growth in London was the strongest in the UK, with annual house price inflation of 4 per cent.

Southern England was, at that time, leading a recovery in property prices following the tough economy of 2008 and 2009.

Over the past decade, the cost of a home generally has risen by 74 per cent, or £123,016, Halifax said.

The strongest inflation over that period has been in London (84.2 per cent), followed by the East of England (84 per cent) and the East Midlands (82.1 per cent).

In cash terms, London house-hunters need £247,638 more than those looking 10 years ago, whereas those in the East of England need £153,930 and those in the East Midlands would typically need an extra £108,116.

Tomer Aboody, director of property lender MT Finance, said: “With prices rising by 74 per cent in the past decade, it shows just how much the market is running away from first-time buyers.”