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UK housing market performance and key insights - September 2022

UK housing market performance and key insights - September 2022

The UK property market continues to grow at a good pace, with growth spread evenly around the country. The rate of price increase remains ahead of the 5-year average despite a slight slowdown in the last month – meaning that this is still a great time to buy property.

UK property marketplace activity has been resilient in the face of economic uncertainty. The latest UK House Price Index from Zoopla underlines this and demonstrates how UK house prices and faith in the market are still strong.

More people than ever desire to move, and Zoopla estimates that total sales volume by the end of 2022 will exceed original projections. A final predicted total of 1.3m sales in 2022 would be approximately 100,000 higher than forecast.

This high level of sales comes at the same time Colliers reports that the average size of a new mortgage is £244,000 – its highest ever level and further proof of both the health of the market and the heights house prices have reached.

This can be explained by the fact that even though the number of new housing starts is at a five-year high, Colliers notes the total pipeline was still just over 163,000 in Q2 2022. This is only just over half of the number of new homes needed each year according to government estimates, and explains why there is such a lot of competition and activity in the market. There are simply not enough homes to go around.

More activity means that the rate of price growth is somewhat insulated from a supposed slowdown coming in the near future. Even if there is a drop in demand, Zoopla anticipates an additional 5% of house price growth on average at a minimum over 2022.

This is in addition to the national average of 8.3% in the year to July 2022. This growth has occurred on top of a high existing hour price base and is a demonstration of strength. As mentioned previously, this puts the market ahead of the five-year average.

In certain markets such as Manchester the growth in property prices has been even higher. The North West city, often thought of as the capital of the North, is at the heart of a booming regional market and its house prices have increased by an average of 9.2% in the year to July 2022.

In Manchester’s city centre market, growth has been even higher – and this has been matched by rental growth. As reported by Rightmove recently, rents in Manchester have gone up by as more than 23% in the last 12 months in markets such as the luxury city centre homes that are in such high demand.

For those looking to buy Manchester apartments – or those in other hotspots including Preston – this is a good time to do it ahead of further anticipated price rises. There are fewer apartments available in Manchester than ever before and this makes it an ideal opportunity for investors to achieve potentially high levels of capital appreciation and rent.

Richard Donnell, research director at Zoopla, notes that the market is not immune from economic concerns – even in Manchester – but adds that: “A lack of any major over-valuation of UK housing – thanks to mortgage regulation - means the market is in much better shape to weather the economic challenges ahead than in previous economic cycles.”

While it is true that higher borrowing costs due to rising interest rates may affect UK property over the rest of 2022 and into the new year, there is no indication of major shocks in the pipeline that could potentially worry buyers.

Furthermore, the Zoopla research indicates that the one-off impact of the pandemic is behind us – a view backed up by figures from Nationwide over the course of this year.

Q1 2022 saw UK hour prices reach their highest level since 2004, with apartment prices increasing by £24,000 in the 12 months to the end of March. Commenting on those figures in April 2022, Robert Gardner, Nationwide's Chief Economist, said: “March saw a further acceleration in annual house price growth to 14.3%, the strongest pace of increase since November 2004.

“The price of a typical UK home climbed to a new record high of £265,312, with prices increasing by over £33,000 in the past year. Prices are now 21% higher than before the pandemic struck in early 2020. The housing market has retained a surprising amount of momentum given the mounting pressure on household budgets and the steady rise in borrowing costs.”

This was followed by more good news in Q2 2022, also reported by Nationwide. UK annual house rice growth slowed according to Nationwide figures, but this is all relative – the market still achieved an average of 10.7% annually and grew for the 11th consecutive month.

Gardener said: “The price of a typical UK home climbed to a new record high of £271,613, with average prices increasing by over £26,000 in the past year.

“The housing market has retained a surprising amount of momentum given the mounting pressure on household budgets from high inflation, which has already driven consumer confidence to a record low.”

What relevance does this have to Q3 2022? It is worth noting as the context for talk of slight slowdown in the housing market, and whether it is something that investors and homebuyers should be worried about.

If retaining average growth in double digits represents a “slowdown”, then any negativity should be kept to a realistic and low level.

Any “slowdown” will happen from a historically high base and a market which is in unprecedented health. Far from being evidence of a decline in housing prospects and future profitability, it is better viewed as further growth on an already strong, high baseline which should inspire confidence.

The housing market is not immune from economic changes, but it is by far one of the most stable and reliable markets in the UK economy – and talk of negativity should be viewed through that context.

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