20 June 2023 – In a first since 2017, house prices fell in June, albeit only marginally, prompting fears that the summer slowdown has come early.
Traditionally, the housing market starts to slow down in July, when kids are off school and people prepare to go on summer holidays. But new data suggests that the summer slump has come early this year.
For the first time since 2017, house prices fell in June compared to May. On average, asking prices increased by 0.6% in June in the last 10 years and last year they rose by 1.1%, according to Righmove‘s latest House Price Index.
And even though the monthly increase of £82 (0.0%) is only slight, it is unusual for this time of the year, when activity in the housing market is traditionally in full swing.
Mortgage Rates Rising
In recent weeks, lenders have withdrawn hundreds of mortgage offers, only to put them back on the market with higher rates.
On Monday, the average rate for a two-year fixed mortgage deal reached 6.01%, according to financial information site Moneyfacts. The average rate for a five-year fixed rate mortgage is now at 5.67%.
Analysis from the Resolution Foundation think tank has shown that mortgage repayments will rise by £2,900 per year in 2024 for any household that has to re-mortgage next year.
This has prompted many to call on the UK government to help households struggling to pay their mortgages. But Prime Minister Rishi Sunak has ruled out backing extra support for mortgage bills, like those for energy bills.
The concern is that any support with mortgage payments could push up inflation, causing the Bank of England to further raise interest rates.
However, Rightmove’s data also shows that buyer demand was still 6% higher than in the same period in 2019, when the market behaved normal before the pandemic threw it into chaos.
But at the same time the number of sales agreed was 3% lower in May this year than in May 2019. It is difficult to say if the most recent mortgage rate rises will further impact on the market’s activity.
That buyers are still keen to buy is also shown by the fact that the property portal has reported a 53% increase in visits to its Mortgage in Principle service compared to a few weeks ago.
Rightmove says that this shows that buyers want to quickly secure the best rate before mortgage rates rise further.
We expect that there may be more change to come depending on this week’s inflation figures and the Bank of England Base Rate decision. It is likely to feel very frenetic for those taking out a mortgage right now, as they try to quickly lock in the best rate that they can find. Although the impact of higher mortgage rates on activity levels has been limited so far, with prospective buyers who can still afford to move appearing determined to go ahead, it remains to be seen how movers will respond to the expected further rate rises.
Tim Bannister, Director of Property Science at Rightmove
And many commentators think it is likely that the Bank of England will raise the base rate again this month.
Prices To Be Expected To Fall By 2% This Year
While house prices fell month-on-month, compared to last year, asking prices have risen by 1.1%, down from 1.5% last month.
Rightmove still thinks that house prices will fall by 2% year-on-year by the end of this year. The property portal expects that in the next few months, prices will continue to fall as is normal for this time of year.
We expect asking prices to edge down during the second half of the year which is the normal seasonal pattern, and while we sometimes re-forecast our expectations for annual price changes at this time, current trends suggest that our original forecast of a 2% annual drop in asking prices at the end of 2023 is still valid.
Tim Bannister, Director of Property Science at Rightmove
The time it takes to find a buyer has not changed in the last few months, and was 55 days in May across the UK. In London, it takes longer, with 64 days in May compared to 63 days in April.
This shows that sellers who price their properties realistically are much more likely to find a buyer quickly.
However, Rightmove says there are still buyers who have optimistic expectations and who believe they can achieve similar prices to last year, when the market was booming.
Property stock has also remained relatively stable, rising slightly in May, where on average every agent had 49 properties on their books, compared to 47 in April.
There are concerns that the increase in mortgage rates could lead to people having to sell their homes because they struggle to make their monthly mortgage payments.
If this happens, the stock levels could rise and as a result asking prices might fall by more than the 2% predicted by Rightmove. However, there is at the moment no indication of this happening, so only time will tell.
