The slowdown in growth was seen across most regions during Q2 and also saw the South West overtake Wales as the strongest performing region, while London remained the weakest.
Robert Gardner, Nationwide's Chief Economist, comments: “UK annual house price growth slowed modestly to 10.7% in June, from 11.2% in May. Prices rose by 0.3% month-on-month, after taking into account of seasonal effects, the 11th consecutive monthly increase.
“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.
“There are tentative signs of a slowdown, with the number of mortgages approved for house purchases falling back towards pre-pandemic levels in April and surveyors reporting some softening in new buyer enquiries. Nevertheless, 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.
“Part of the resilience is likely to reflect the current strength of the labour market, where the number of job vacancies has exceeded the number of unemployed people in recent months. Furthermore, the unemployment rate remains close to 50-year lows. At the same time, the stock of homes on the market has remained low, which has helped to keep upward pressure on house prices.
“The market is expected to slow further as pressure on household finances intensifies in the coming quarters, with inflation expected to reach double digits towards the end of the year. Moreover, the Bank of England is widely expected to raise interest rates further, which will also exert a cooling impact on the market if this feeds through to mortgage rates.
Most regions see a slight slowing in price growth
“Our regional house price indices are produced quarterly, with data for Q2 (the three months to June) showing a softening in annual house price growth in nine of the UK’s 13 regions.
“The South West overtook Wales as the strongest performing region in Q2, with house prices up 14.7% year-on-year, a slight increase from the previous quarter. This was closely followed by East Anglia, where annual price growth remained at 14.2%.
“Wales saw a slowing in annual price growth to 13.4%, from 15.3% in the first quarter. Price growth in Northern Ireland was similar to last quarter at 11.0%. Meanwhile, Scotland saw a 9.5% year-on-year rise in house prices.
“There was a slowing in annual house price growth in England to 10.7%, from 11.6% in the previous quarter. While the South West was the strongest performing region, overall southern England saw weaker growth than northern England.
“Within northern England, the North West was the strongest performing region, with price growth picking up to 13.3% year-on-year, from 12.4% in the first quarter.
“London remained the weakest performing UK region, with annual price growth slowing to 6.0%, from 7.4% in the previous quarter.
South West strongest performing region throughout the pandemic
“Looking at house price growth since the onset of the pandemic, we see a similar pattern, with London also the weakest performing region. Since 2020 Q1, average house prices in the capital have increased by 14.9%, whilst all other regions, except the Outer Metropolitan, have seen at least a 20% uplift.
“The South West was also the strongest region over this period, with a 27.7% increase, after taking account of seasonal effects, followed by Wales, where average prices rose 26.2%. Meanwhile, in the North West, prices were up 25.8%.
“These trends may reflect a shift in housing preferences; our housing market surveys have pointed to the majority of people looking to move to less urban areas. Our research found that predominantly rural areas have seen stronger price growth in recent years than predominately urban areas. We’ve also seen strong house price growth in a number of areas closely associated with tourism, including parts of Devon, South Wales, the Cotswolds and the Broads. This suggests some of the demand may be being driven by those buying holiday or second homes.”
Brean Horne, personal finance expert, at NerdWallet, said: “The pandemic could not curtail the upward march of house prices, but many expect that rising interest rates and inflation will. However, today's figures show that this slowdown is yet to take effect.
"It'll come as a blow to those hoping to take their first step onto the property ladder, who are facing a triple-threat. Interest rates are rising, affecting the amount they can borrow; inflation has risen above 9% and could reach as high as 14% later this year, impacting the amount they can save; and if house prices also climb further, many properties will simply be out of reach.
“So, with prices remaining resilient, people wanting to purchase a property must be pragmatic in their approach. It is vital they first take stock of all financial aspects of their lives, including personal savings, credit scores and future income, before making any major decisions. Further, prospective homebuyers will need to consider potential mortgage deals carefully, seeking out the best options in terms of the rates and loan-to-value offers available.
“These are uncertain times for homeowners and homebuyers alike. Despite predictions of the market cooling, it’s not going to happen overnight. However, being proactive and exploring the various options available to them will be a good starting point. In doing so, they will likely feel more in control of their options and better positioned to act if house prices do start to decline in the months to come."
Guy Harrington, CEO Glenhawk, says: “Another month of slowing growth is just a precursor to the sharp correction about to torpedo the UK housing market, caused by a perfect storm of record inflation, geopolitical turmoil, rising rates and a once-in-a-generation cost of living crisis. It’s absolute madness to think house prices will keep on rising. As caution grips the market, the outlook for 2023 looks increasingly ominous.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: "While some of the heat has come out of the market as we approach the traditionally quieter summer months, there are still plenty of people keen to move although rising interest rates may temper the ambitions of some as to what they can afford.
"What has changed for all borrowers is the rate environment – gone are the sub-1 per cent deals available nine months ago. Now, mortgage products are in the 3 to 4 per cent range depending on their length and loan-to-value.
"These rates available today reflect not only the increase in the cost of funds but also lenders' desire to moderate volumes, with many of the high street banks still sitting on large balances or even cheap Bank of England funds. Specialist lenders are repricing upwards and/or streamlining their product ranges, meaning borrowers need to move quickly to secure rates."
Richard Davies, MD of Chestertons, says: “In June, our branches have seen an incredible jump of 47% in buyer enquiries compared to June last year. Although there has been a slight dip in viewings of 12% over the same time period; likely due to people taking advantage of a summer holiday for the first time since the beginning of the pandemic; the growing buyer demand indicates that house hunters are looking to make their next move over the coming months.
“Overall, London’s property market remained extremely active throughout the second quarter of 2022 and supply continued to be outstripped by demand, putting further pressure on prices. The Bank of England's interest rate rises were yet another incentive for many buyers to prioritise their house hunt in order to lock in favourable rates. Looking ahead, we predict the micro-markets of central London to become particularly competitive as some of our local offices are noticing a gradual return of buy-to-let investors who are lured back into the market by rising rents and the potential of higher profits.”
