The new record price is the highest at this time of year since May 2014 and marks a national jump of £55,551 in asking prices in the two years since the housing market shut due to the pandemic. This compares to a rise of just £6,218 in asking prices in the two years before the pandemic and illustrates how the frenzied market activity has led to two-year price growth in cash terms never before witnessed in over twenty years of tracking prices.
This fourth consecutive price record comes alongside a fourth successive interest rate rise, but this rate rise and other household economic concerns do not appear to have dented the motivation and urgency to move that are felt by many, though there are signs that the market is starting to ease.
The number of buyers contacting estate agents is 14% down on the stamp-duty-fuelled market of this time last year but is up by 31% on the more comparable market of 2019. The number of properties available to buy is 55% down on the levels seen in 2019, meaning that supply and demand look likely to remain out of kilter for at least the rest of the year.
The number of sales agreed is up by 12% in the year to date compared to 2019 even with restricted choice, though is down 17% compared to the exceptional market of the same period last year. These numbers suggest that a lack of homes for sale rather than a lack of desire from buyers is what is dictating the pace of the market. New stock is most urgently needed in the mid-market sector of two and three-bedroom semi-detached homes, which are seeing the most competition from buyers.
Tim Bannister, Rightmove’s Director of Property Science, comments: “People may be wondering why the housing market is seemingly running in the opposite direction to the wider economy at the moment. What the data is showing us right now is that those who have the ability to do so are prioritising their home and moving, and the imbalance between supply and demand is supporting rising prices.
"Though demand is softening from the heady levels we saw this time last year, the number of buyers enquiring is still significantly higher than during the last ‘normal’ market of 2019, while the number of homes for them to choose from remains more constrained. We anticipate that the effects of the increased cost of living and rising interest rates will filter through to the market later in the year, and a combination of more supply of homes and people weighing up what they can afford will help to moderate the market.”
As interest rates creep up, new analysis tracks first-time buyer affordability over the last ten years. This month, average monthly mortgage payments (£901) overtake average monthly rental payments (£887). However, the data shows that over the last ten years, the gap in payments has narrowed, meaning it is no longer notably cheaper to rent in terms of monthly outgoings.
This new affordability analysis is based on a household taking out a 90% loan-to-value mortgage, at the average two-year fixed interest rate, and looks at a typical first-time-buyer home of two bedrooms or fewer, and the average monthly equivalent rental payments.
The average monthly mortgage payment for a typical first-time-buyer home has increased by 13% (+£100) since December last year following four interest rate rises, although this is only 11% (+£87) higher than ten years ago. This may be surprising considering the strong house price growth over the last ten years, however, it illustrates that a decade of historically low-interest rates have effectively compensated for rising house prices in terms of monthly outgoings on a mortgage.
By contrast, equivalent monthly rental payments are 40% higher than ten years ago, as tenants feel the full effect of rising costs. Rents are currently rising at the fastest pace that Rightmove has ever recorded.
Monthly outgoings are only one part of the equation, however, as the data also looks at the ability for a first-time buyer to borrow enough from a lender to purchase a first home. For a person looking to buy on their own, on the national average full-time salary, borrowing 4.5 times their income, ten years ago they would have needed to find a 25% deposit (£35,053) to afford a typical first-time buyer home. Today they would need a 34% deposit (£74,402).
These are national averages and they will vary across the UK, however, at a national level, it means that a person buying on their own on an average salary, looking to buy an average first-time buyer home, now needs a deposit 112% higher than a decade ago.
This shows that while average monthly payments for a first-time buyer on their mortgage have remained relatively stable over time due to low-interest rates, it has become more difficult to raise the increasingly large deposit needed to cover the gap between the price of a first home and what one can borrow.
Two people buying together on the average salary should still be able to afford a first-time buyer's home if they have saved a 10% deposit, although that deposit size has increased from £14,269 to £22,312, a jump of 56%.
Tim Bannister concludes: “This new analysis shows how it has become increasingly difficult for an average first-time buyer to afford a home on their own. The historic average mortgage payments for a first home provide some good context to the current backdrop of rising interest rates and help explain why so many people take out fixed-rate mortgages. As interest rates are predicted to rise further during the course of 2022, many buyers will be looking to lock in mortgage deals now before further rate rises.
"With so many variables affecting house prices and affordability, it’s a reminder that the market is extremely difficult to predict, and those looking to buy will be prioritising their own needs and what they can afford rather than waiting to try and time the market."
James Forrester, managing director of Barrows and Forrester, commented: “The UK property market continues to zig while the wider economy zags and this is due to the fact that the scales of supply and demand remain tipped firmly in favour of the nation’s home sellers.
"At the same time, relative mortgage affordability remains extremely good despite a string of interest rate increases. So while a generation of homebuyers who have known nothing other than a sub-one percent base rate may be understandably concerned, they remain in a very strong position when it comes to borrowing and buying.
"Those in their tin hats may wish to start sowing the seeds of doubt with regard to future market health, but the reality is that the UK property market will remain impervious to the external influences of economic instability currently making the headlines.”
Marc von Grundherr, director of Benham and Reeves, commented: “House prices have been soaring throughout the pandemic, but it looks as though the market has reached its Icarus moment, with buyer demand starting to come off the boil when compared to this time last year.
"It’s unlikely that we will now see demand and property values come plummeting back to earth with a thud, but we do expect that a more muted market performance lies ahead, as buyers face the reality of rising interest rates and wider economic instability.”
Managing director of HBB Solutions, Chris Hodgkinson, commented: “Despite many wider performance indicators suggesting that the UK property market is starting to cool, the nation’s home sellers continue to enter the market with some quite lofty asking price expectations.
"This is being driven by the fact that there remain more buyers than there are homes to purchase, but regardless of this, those pricing with a little too much optimism may well find they struggle to sell.”
Geoff Garrett, Director of Henry Dannell, says: “While interest rates remain at just one percent, we expect to see further increases as the year progresses.
"Although these are likely to remain marginal, the impact it will have on the property market will be far more significant.
"Buyers are already starting to tread with greater caution as they’re finding that the cost of borrowing is no longer as affordable as they may have expected. This has caused mortgage approval levels to dip and house price growth is also starting to plateau where the actual price paid for homes is concerned.
"It won’t be long before buyers are forced to accept this reality and adjust their asking price expectations in order to secure a buyer.”
Jonathan Samuels, CEO of Octane Capital, comments: “The UK housing market has certainly shifted down a gear or two when compared to the manic market conditions seen throughout the pandemic. This is only to be expected as the record levels of market activity seen over the last two years were simply unsustainable on a long term basis.
"Buyer interest and sales volumes remain very high, however, a correction is most certainly on the way, although this is likely to come in the form of a return to normality, not a market collapse.”
Christina Melling, CEO of Stipendium, commented: “Spare a thought for the nation’s hard-pressed first-time buyers who can only sit and watch as the task of saving a deposit to secure that first foot on the ladder once again starts to spiral.
"Not only have they had to struggle to save as a result of record-low interest rates in recent times, but now they are ready to buy, the cost of a mortgage is starting to climb and will continue to do so as interest rates increase over the coming year.”
