House price growth is almost at a standstill, with the current annual rate the lowest since August 2012.
According to our House Price Index, house price inflation has slowed rapidly over the last year.
Weaker demand, more price-sensitive buyers and fewer sales have led to house price growth coming to a near standstill, with prices rising by just +0.1% since August 2022.1 The current rate of house price growth is the lowest since August 2012, according to our house price index.
This is the lowest annual rate of growth since August 2012.3
What does £265,100 buy you: the new national average house price?
There is a clear north-south divide in house price inflation, with house prices falling by -1 per cent in the south and rising by as much as 1.7 per cent in northern Scotland.
Higher priced homes like those in the South require larger mortgages to purchase.
As a result, higher mortgage rates have had a greater impact on homebuyers in the South who need to build up larger deposits and higher incomes in order to buy a home.
Homebuyers in the south are now effectively being squeezed out of the market, and weakening demand is pushing down house prices.
On the other hand, the less expensive markets in the north - particularly Scotland - are holding up because property prices are lower here and homebuyers don't need large mortgages to buy a property.
The north-south divide in property prices will continue for the rest of 2023 and into 2024.
Property prices are still rising in areas where first-time buyers (FTBs) can still afford to buy a home.
One in three homes sold in the UK are purchased by first-time buyers, the majority of whom are moving out of the private rental market.
In recent years, ultra-low mortgage rates have meant that monthly mortgage repayments are much cheaper than monthly rents.
This supported demand and led to many first-time buyers bypassing the flat and small house market to buy 3+ bedroom homes.
Today, with mortgage rates above 5 per cent, this trend has reversed nationally and on average, renting is 10 per cent cheaper than buying. This trend continues despite the fact that rents have grown faster in recent years.
Despite this, it is still cheaper to buy than to rent in Scotland, the North East, North West, Northern Ireland, Yorkshire and Humber and Wales.
If renters take out a mortgage to buy the home they rent at 85 per cent loan-to-value (using a 30-year term and paying a mortgage rate of 5.6 per cent), they will find it cheaper to buy than to rent in these areas.
In fact, in Scotland and the North East, the average mortgage repayment is 18 per cent lower than the cost of renting.
This saves money for first time buyers, helping them to enter the housing market and meet their housing needs.
In the South of England, however, the opposite is true.
The cost of buying a home is higher than the cost of renting in all regions of the South, and in London the cost of buying a home is 24 per cent higher than the cost of renting.
This means that more expats are being pushed out of the sales market, increasing the demand for rented accommodation.
The real situation for all expat housewives is worse when mortgage lenders' stress tests are taken into account.
Mortgage lenders require new borrowers to be able to afford a higher mortgage 'stress rate' of close to 8.5 per cent rather than the product rate of 5.6 per cent used in this analysis.
As a result, demand will be weaker and price reductions will be focussed in the South of England where affordability challenges are greatest.
One point that may help expatriate family homebuyers is that more and more ex-let properties are coming onto the market as landlords continue to sell their properties.
Ex-rental properties are often 25 per cent less expensive than their counterparts in the wider market and are often more accessible to expatriate families.
Housing affordability remains a major barrier for home buyers, both in terms of house price levels and mortgage repayment costs.
The challenge is greatest in the South of England, where in many market areas the household income required to buy a home is over £75,000.
Higher mortgage rates over the last year have increased monthly mortgage repayments on the average priced home by £216, an increase of 23 per cent.
Mortgage rates are now starting to move lower, but remain above 5 per cent.
We expect mortgage rates to fall below 5 per cent later this year, but this will be a lengthy process.
The level of mortgage rates will depend entirely on the financial markets, which will reassess how much longer interest rates need to remain high in order to bring inflation under control.
We expect lower mortgage rates to support more sales later this year and into 2024.
