First rise in four months is welcomed but affordability is putting some buyers off
Affordability remains a significant constraint on the market, even though mortgage rates have eased recently, says experts in response to the latest Lloyds House Price Index.
The Index showed that house prices rose 0.2% in June, after a 0.2% fall in May, while annual growth rose 0.6%, from 0.5% in May. The average property price now stands at £299,330 compared with £298,812 in May.
Regionally, Northern Ireland continues to record the UK’s strongest annual growth at 7.4% to £229,000, followed by Scotland, up 3.9%, with an average price of £223,277. In Wales, growth is up 0.9% to £231,142.
Annual price growth for first-time buyers increased to 0.8% in June from 0.3% in May, with the average first-time buyer property now costing £240,433.
A holding phase
Emeritus Professor Joe Nellis, economic adviser at MHA, said the housing market has entered a holding phase. “The long-term trajectory of interest rates remains unclear, leading many potential buyers to hold off on purchasing until the economic outlook becomes clearer.
“Affordability remains a significant constraint on the market. Although mortgage rates have eased slightly in recent months as lenders compete for business, they remain high enough to keep many potential buyers on the sidelines. First-time buyers, in particular, continue to struggle to save for larger deposits. As a result, demand remains steady rather than strong, helping to keep house price growth modest.
“Although lenders have introduced more flexible affordability assessments and expanded the availability of higher loan-to-value mortgages, many prospective buyers are still forced to postpone home ownership. Given the economy’s current lacklustre state, any improvement in affordability will be gradual rather than dramatic.”
Gareth Lewis, deputy CEO of specialist lender MT Finance, said: “From a lending perspective, we are seeing valuers cautious on price while buyers are looking for a steal and prepared to negotiate hard.
“After a strong start to the market this year, we are now seeing the ramifications of an interest rate environment which has become unstable again, and the impact this is having on transactions. Volatile funding rates are the real issue at the moment; while everything pointed towards a lower interest rate environment at the start of this year, the impact of war in the Middle East has since changed this outlook.”
