House prices still rising annually but growth slows: Official data shows values up 1.9% in the past year – but £7k below September 2022 peak

House price growth slowed to 1.9 percent in the 12 months to May and a further slowdown is expected as mortgage interest rate hikes take full hold.

Annual property price inflation in May fell from 3.2 per cent in April, taking average UK house prices to £286,000, £6,000 higher than 12 months ago – but £7,000 below its recent peak in September 2022, according to the Office for National Statistics.

Mortgage rates have risen rapidly since disappointing inflation data in May raised the likelihood of further increases in the Bank of England’s key interest rate, and this has yet to feed through into the ONS index.

The market expects base rates to rise to somewhere between 5.75 and 6 percent by the end of the year, a 1 percent increase from the current level of 5 percent, the highest level since April 2008.

Tomer Aboody, director of real estate provider MT Finance: ‘Although property prices have risen slightly over the past year, these figures illustrate the decline in buyer confidence.

“As the market gets to grips with the constant negativity in terms of rising interest rates and high inflation, we will see a slowdown in real estate transactions.

“Something has to change to pump some fuel into the market as sales volumes are almost half what they were at this time last year.

“The property market is the backbone of the UK economy and must not come to a complete standstill.”

Oxford Economics, an economic forecasting and analysis organization, expects house prices to fall 13 percent from the highest point in this price cycle to the lowest point, while transaction volumes remain low.

Modupe Adegbembo, G7 Economist at AXA Investment Managers told This is Money that she sees prices fall by 10 percent.

“As a headline number, 10 percent is big,” she says. “But you have to see that in the context of a booming housing market over the past three years.

‘In that period we saw a strong increase in activity and house prices, about 20 percent. so that 10 percent should be seen as a correction in that context.’

Rising mortgage rates continue to exert downward pressure on the market and a further slowdown in house price growth is expected

Iain McKenzie, chief executive of The Guild of Property Professionals, said: ‘The outlook for the real estate market remains mixed as house prices remain relatively stable even as overall growth slows. Homeowners can rest assured that their property has not lost significant value this year.

“Affordability has been the biggest barrier to homeownership in recent times, driving house prices above what people can afford and preventing potential buyers from saving for a down payment.

“We expect this cooling trend to continue for the rest of the year, albeit at a much slower pace than the gloomy forecasts we saw at the start of 2023.”

In contrast to house prices, the growth rate of rents has increased.

Residential rental costs increased by 5.1 percent in the 12 months to June 2023, up from 5.0 percent in the 12 months to May 2023.

Private rental costs in the UK continue to rise as demand outstrips supply, putting upward pressure on rents

The situation for tenants is unlikely to improve as the numbers show a 57 percent increase in the supply and demand mismatch since June 2022.

This means that pressure on rents remains, with a majority of responding brokers reporting that rents are rising on average monthly.

At the same time, new data from Shelter, a homeless charity, shows that every day 172 private tenement households in England receive a no-fault Section 21 eviction notice from their landlord – the equivalent of one every eight minutes.

In May, the government published its Renters (Reform) Bill to ban evictions under Section 21, which divided opinion among tenants and landlords.

Since then, however, the bill has not made it through parliament.