Home prices are up 15.5% in a year as a third of homebuyers trim their budget

Home prices rise 15.5% in a year as one-third of homebuyers trim their budget due to rising interest rates and cost-of-living crisis

  • Home prices rose 15.5% in July, but the market is expected to weaken
  • The typical home now costs £292,000, an increase of £39,000 on last year
  • About 29% of potential buyers said they were cutting their budget
  • For those who rely on borrowing to buy, that number jumps to half of buyers

House prices in the UK have risen by £39,000 in the past year, as reports suggest that buyers are cutting budgets to enable them to buy.

Despite rising interest rates and a cost-of-living crisis, high home demand and low inventory are said to keep prices high.

The average house price in the UK rose 15.5 per cent in the year to July according to the latest House Price Index from the Office for National Statistics, taking the average house price to £292,000.

The climb: UK house prices have risen by £39,000 in the past year, says the Office for National Statistics

The sharp increase is a marked difference from the past few months, which saw a slowdown in the rate of house price inflation. In June 2022, prices grew by 7.8 percent according to the Office for National Statistics.

The significant year-on-year rise in house prices in July is likely to have been driven by the reduction of the stamp duty holiday in June 2021, which cut the maximum tax saving from £15,000 to just £2,500.

The numbers show that while the home price continues to rise, buyers are trimming their budgets as household finances shrink due to increased costs elsewhere.

Nearly a third (29 percent) of potential buyers say they’ve cut budgets in response to the rising cost of living, according to a survey by Savills.

This is even more true of those who rely more on borrowing – including half (50 per cent) of those looking to take the first step on the property ladder, and 44 per cent of those looking to scale up.

The current climate also reduced the appetite of the movers. The net balance of people who are more committed to moving in the next three months decreased to -1.7 per cent, while the net balance of +7.1 per cent feels more committed to moving in the next year.

Average house prices in the UK increased by £6,000 between June and July this year, compared to a drop of £13,000 between the same months last year.

Annual rise: house prices continued to rise in July, jumping 15.5% over the past 12 months to a new median price of £292,000

Annual rise: house prices continued to rise in July, jumping 15.5% over the past 12 months to a new median price of £292,000

Tax relief impact: The sharp annual price increase was due in part to the end of the stamp duty holiday in June 2021 which led to lower prices the following month

Tax relief impact: The sharp annual price increase was due in part to the end of the stamp duty holiday in June 2021 which led to lower prices the following month

“The July data has been skewed by the stamp duty holiday, so it should be taken with a pinch of salt,” said Andrew Montlake, managing director of mortgage broker Coreco.

“The reality is that the real estate market has been slowly cooling down in recent months as the nation suffers an unprecedented cost of living crisis.

We also see that valuers are starting to become more conservative due to economic headwinds. With prices sure to go up and the cost of living crisis worsening as winter sets in, the real estate market is likely to see modest price growth between now and spring.

Rising mortgage rates and huge pressure on household finances are also likely to dampen demand in the coming months. As always, though, a lack of supply will prop up prices and prevent a clear decline.

Interest on the average two-year fixed-rate mortgage is now 4.24 per cent, the highest since January 2013. That means those currently looking to remortgage at the end of a two-year deal – and who were set in September 2020 when rates were stationary. At around 2.24 per cent – they can be expected to increase their monthly payments by more than £200.

Shortage of supply continues to be a major problem for buyers. According to Savills, more than half (54 percent) of buyers say a lack of inventory significantly limits their ability to purchase property. This is only a slight decrease from 63 per cent in April.

Jeremy Leaf, North London estate agent and former RICS Chairman, says: ‘Although the numbers are solid, it’s a little early even for this, the most comprehensive of all housing market surveys, to reflect the change in activity we’ve done. It has been seen on Earth in the past few months.

“The balance of power is shifting more towards the buyer, but what these numbers show is that there is still a lot of underlying strength that will mean that a serious price correction is less likely.

“A nice softening has occurred and will likely continue to do so over the next few months.”

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Mortgage rates skyrocketed as the Bank of England’s base rate rose rapidly.

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