The UK housing market witnessed a modest uptick in average asking prices during May, reaching a new record high, despite ongoing volatility in mortgage rates. According to property portal Rightmove, the average price of a home coming to market across the UK rose by 0.6% this month, pushing the national average to £375,131. This increase, equivalent to £2,067, marks a continuation of the market's gradual recovery observed since the beginning of the year.
Digging deeper into the data, Rightmove's analysis shows that properties typically bought by first-time buyers, encompassing two-bedroom and smaller homes, saw a 0.5% increase in asking prices. Similarly, larger family homes with four or more bedrooms experienced a 0.7% rise. This broad-based growth suggests a degree of confidence across different segments of the market, even as external economic factors continue to exert pressure on affordability and buyer sentiment.
A significant factor influencing the current market landscape is the fluctuating cost of borrowing. Mortgage rates have recently seen an upward trend, with the average two-year fixed mortgage rate now standing at 5.91%, and the average five-year fixed rate at 5.46%, according to financial data firm Moneyfacts. These rates, while lower than their peak in late 2022, remain considerably higher than the ultra-low rates seen in the immediate aftermath of the pandemic, posing challenges for many would-be homeowners.
Despite the higher borrowing costs, the market is showing resilience. Rightmove reported that the number of sales agreed during the past two weeks is only 17% below the levels recorded in 2019, a pre-pandemic benchmark. This indicates that a significant number of buyers are still entering the market, adapting to the current financial environment. However, the report also highlighted a notable regional disparity in house price growth. Northern regions, including the North West and North East, are experiencing stronger annual price growth compared to the South of England, where affordability constraints are more pronounced.
For first-time buyers, the combination of rising house prices and elevated mortgage rates presents a significant hurdle. While some government schemes like Help to Buy have concluded, and stamp duty thresholds remain a consideration, the deposit required alongside higher monthly repayments makes the entry point to homeownership challenging. Existing homeowners, particularly those coming off fixed-rate deals, are facing increased mortgage costs, which could impact their disposable income and potentially influence future moving decisions. Landlords, meanwhile, are navigating a complex environment of evolving regulations and tenant demand, alongside their own financing costs.
Looking ahead, the direction of interest rates from the Bank of England will be crucial. Any future cuts to the base rate could bring down mortgage costs, potentially stimulating further activity in the housing market. However, economic uncertainty and inflation pressures mean that significant reductions are not immediately guaranteed, suggesting the market will likely continue to experience a period of cautious optimism and gradual adjustments.
Source: Rightmove, Moneyfacts