House prices in the UK saw an upward trend for the fourth consecutive month in June, signaling a significant rebound in the housing market following a prolonged period of declining annual prices. According to the Office for National Statistics (ONS), the average price of a home increased by 2.7% in June, raising the average cost to £288,000. This increase mirrored the growth observed in May and marked a continued recovery from eight months of annual price declines.
Breaking down the regional data:
- England: The average house price reached £305,000, reflecting a 2.4% increase from the previous year.
- Wales: The average property price stood at £216,000, up 1.8% from a year earlier.
- Scotland: The average house price was £192,000, representing a 4.3% rise over the year.
- Northern Ireland: The average price was £185,000, showing a substantial 6.4% increase compared to the same period a year ago.
The recovery in house prices is attributed to recent monetary policy changes by the Bank of England, which cut interest rates for the first time since 2020. The rate was reduced from 5.25% to 5.00%, leading to a cascade of mortgage rate reductions. Many major high street banks are now offering mortgage deals with rates below 4%, making borrowing more affordable and potentially stimulating housing market activity.
Sara Palmer, a broker at The Mortgage Lender, highlighted that the summer months typically see increased activity in the property market. The recent base rate cut and upcoming general election have also contributed to growing optimism among buyers and sellers, further fueling the uptick in house prices.
However, the rise in inflation for the year ending June, reported on Wednesday, could introduce some uncertainty into the housing market. The inflation figures, which marked the first increase since December 2023, might impact buyer confidence and slow down the rate of price growth. Jeremy Leaf, former chairman of the Royal Institution of Chartered Surveyors, suggested that while the inflation rise might not derail the interest rate reduction strategy, it could influence market confidence and slow the pace of recovery.
Elliott Jordan-Doak, senior UK economist for Pantheon Macroeconomics, remains optimistic that the lower mortgage rates will continue to boost housing demand. He predicts that the typical two-year fixed-rate mortgage interest rate, which fell to 5% in July, could decrease further to 4.3% by the end of the year, contingent on expected rate cuts by the Monetary Policy Committee (MPC).
In contrast to the recovery in house prices, private rents across the UK surged by 8.6% in the year to July, averaging £1,319 per month. This increase matches the previous year’s rate and remains slightly below the record-high annual rise of 9.2% seen in March. In London, rent inflation hit a notable 9.7%, with the average rental cost reaching £2,114.
Sarah Coles, head of personal finance at Hargreaves Lansdown, remarked on the persistently high rent increases despite a deceleration in the rate of growth. She attributed this to landlords facing increased costs from higher mortgage rates, stricter tax regulations, and anticipated legislative changes. Additionally, the growing number of tenants competing for available properties exacerbates the difficulty of finding affordable rentals, further complicating the rental market dynamics.
Overall, while the housing market shows signs of recovery with rising prices, challenges persist, particularly in the rental sector, where high demand and rising costs continue to strain tenants and landlords alike.