Mortgages in Limbo as Pound Plunges

Mortgages are drying up as lenders puzzle over how the pound dropping like a stone against the dollar will impact interest rates and house prices. 

The housing market is in limbo as buyers and sellers wait to see if property values will fall. 

Meanwhile, house price surveys reflect a rising market based on sales data that predates Chancellor Kwarsi Kwarteng's controversial mini Budget that has triggered so much criticism of the tax-cutting policies from new Prime Minister Liz Truss. 

The new direction includes doubling the stamp duty nil-rate band to £250,000 and reversing planned rises in income tax, national insurance and corporation tax next year. Landlords miss out on the stamp duty boost as they pay additional, not standard, rates. A

nother factor adding to the confusion in the housing market is the Bank of England base rate rise of 0.25 per cent to 2.25 per cent - the highest rate since 2008. 

House prices are waiting for the perfect storm - raging inflation, the lowest ever exchange rate of the pound against the dollar and the prospect of further interest rate rises. 

Some analysts predict rates could hit 6 per cent by June 2023.

House prices are still rising

The latest data from the usually reliable Office for National Statistics (ONS) came from July 2022, when the market faced a less complicated future. 

The report shows house prices exploded by 15.5 per cent over the preceding 12 months - double the rate of 7.8 per cent posted in June and the fastest growth recorded since May 2008. 

In the year to July 2022, the average price of a home increased by £39,000 from £253,000 to £292,000. 

Average house prices went up 16.4 per cent in England to £312,000 and 17.6 per cent in Wales to £220,000 - both national records.

“The annual growth rate reflects the volatility in house prices throughout 2021. Rends in 2022 have been more stable,” the ONS report said. Average house prices in the UK grew by 2.0 per cent between June and July 2022, representing the ninth consecutive monthly increase. This compares with a decrease of 4.8 per cent during the same period a year earlier.”

The market will slow, say lenders

House price data from mortgage lenders Halifax and Nationwide echoed the ONS even though their figures are for August, not July. The Halifax reports house prices increased by 11.5 per cent in the year to August.

“While house prices have so far proved to be resilient in the face of growing economic uncertainty, industry surveys point toward cooling expectations across the UK, as buyer demand eases, and other forward-looking indicators also imply a likely slowdown in market activity,” said director Kim Kinnaird.

Nationwide posted a slower price hike - 10 per cent for the year.

“There are signs that the housing market is losing momentum, with surveyors reporting fewer new buyer enquiries in recent months and the number of mortgage approvals for house purchases falling below pre-pandemic levels. However, the slowdown to date has been modest, and combined with a shortage of stock on the market, has meant that price growth has remained firm,” said the lender’s chief economist Robert Gardner. 

“We expect the market to slow further as pressure on household budgets intensifies in the coming quarters, with inflation set to remain in double digits into next year. Moreover, the Bank of England is widely expected to continue raising interest rates, which will also exert a cooling impact on the market if this feeds through to mortgage rates, which have increased noticeably in recent months.”

House price history for your neighbourhood

Use this interactive map to assess how your property investments have performed. Input the town name, and the map does the rest.  

Source: ONS and Land Registry

House price digest FAQ

The figures for average house prices and movements in property values can be confusing if you don't know how to read the data. Here are some of the most asked questions about house price indices.

Why are the average property prices different in each report?

The reports use different data to draw conclusions and take the data from different periods. Nationwide and Halifax base their indices on customer data, which are much smaller samples than the national data analysed by the ONS. Acadata's methodology includes analysis that no other index uses.

Each organisation collects data over different periods, making a direct comparison difficult.

What is the average house price?

There's no such thing as an average home. The figure is calculated from the total value of all transactions in the sample divided by the number of homes changing hands.

What are the asking and sale prices?

The asking price is the amount an owner would like to achieve from a house sale, while the sale price is the negotiated amount paid by the buyer.

Which house price index is the best?

All have flaws because of the restricted data, but the one with the broadest sample comes from the ONS. Unfortunately, the ONS data is usually the last to market and out of date by two to three months on publication.

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