Home prices rise 15.5% in a year as a third of homebuyers reduce their budget

Home prices rise 15.5% in a year as a third of homebuyers cut their budget due to rising interest rates and the cost of living crisis

  • House prices rose 15.5% in July, but the market is still expected to soften
  • A typical house now costs £292,000, up from £39,000 in the last year
  • About 29% of prospective buyers have said they are lowering their budget.
  • For those who rely on loans to buy, the figure jumps to half as many buyers.

UK house prices have risen by £39,000 in the past year as reports suggest buyers are reducing their budgets in order to make a purchase.

Despite rising interest rates and the cost of living crisis, high demand for homes and low inventories are said to be underpinning price increases.

Median house prices in the UK rose 15.5 per cent in the year to July, according to the latest ONS House Price Index, taking the median house price to £292,000.

Rising: UK house prices have risen by £39,000 in the last year, says the ONS

The sharp rise is a marked difference from recent months, which have seen the rate of house price inflation decline. In June 2022, prices grew by 7.8% according to the ONS.

The significant increase in house prices year-on-year in July was likely due to the phasing out of the stamp duty holiday in June 2021, which reduced the maximum possible tax savings from £15,000 to just £2,500.

The numbers suggest that while the price of a home continues to rise, buyers are tightening their budgets as household finances take a hit from rising costs elsewhere.

Nearly a third of prospective buyers (29 per cent) say they have lowered their budgets in response to the rising cost of living, according to a survey by Savills.

This is truer for those who are most reliant on loans, including half (50 percent) of those who want to take the first step on the property ladder and 44 percent of those who are looking to grow.

The current climate has also dampened the appetite of engines. The net balance of people who are most committed to moving in the next three months has fallen to -1.7 percent, while a net balance of +7.1 percent feels most committed to moving in the next year.

Median UK house prices increased by £6,000 between June and July this year, compared with a drop of £13,000 between the same months last year.

Year-on-year increase: House prices continued to rise in July, jumping 15.5% over the previous 12 months to a new average price of £292,000

Year-on-year increase: House prices continued to rise in July, jumping 15.5% over the previous 12 months to a new average price of £292,000

Tax relief impact: The sharp year-on-year rise in prices is partly due to the end of the stamp duty holiday in June 2021 which saw prices fall the following month

Tax relief impact: The sharp year-on-year rise in prices is partly due to the end of the stamp duty holiday in June 2021 which saw prices fall the following month

Andrew Montlake, managing director of Coreco’s mortgage broker, said: ‘The July data has been skewed by the stamp duty holiday, so it should be taken with a grain of salt.

‘The reality is that the housing market has been slowly cooling off in recent months as the nation is gripped by an unprecedented cost of living crisis.

“We are also seeing appraisers start to turn more conservative due to strong economic headwinds. With more rate hikes certain and the cost of living crisis worsening as we enter winter, the housing market is likely to see modest price growth between now and spring.

‘Higher mortgage rates and immense pressure on household finances are also likely to lead to a drop in demand in the coming months. However, as always, the lack of supply will support prices and prevent a steep decline.”

Interest on the average two-year fixed-rate mortgage is now 4.24 percent, the highest since January 2013. It means that those currently looking to remortgage at the end of a two-year agreement, which they locked in in September 2020 when rates settled at around 2.24%, you can expect your monthly payments to increase by over £200.

The lack of supply continues to be a major problem for buyers. According to Savills, more than half of buyers (54 per cent) say that out-of-stocks are significantly inhibiting their ability to purchase a property. This is only slightly down from 63 percent in April.

Jeremy Leaf, North London estate agent and former RICS Residential Chairman, says: “While the numbers are robust, it’s a little early for even this, the most comprehensive of all housing market surveys, to reflect the change in the activity that we have seen on the ground in recent months.

“The balance of power is shifting more towards the buyer, but what these numbers show is that there is still a lot of underlying strength, which means a serious price correction is less likely.

“Slight softening has been occurring and is likely to continue to do so over the next several months.”

The best mortgage rates and how to find them

Mortgage rates have risen substantially as the Bank of England base rate has risen rapidly.

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