The extent to which people expect house prices to rise fell in June to just below 5%, down from over 6% in May… 

Added to this, forecast annual UK house price growth is at its lowest level this year, according to the most recent research by propertyfinder.com.

The main cause for the shift in people’s expectations is the May rate rise, as well as the well publicised probability of a further hike to 6pc before the end of the year, with 88% of people stating that a further cooling of the market would be primarily due to rate hikes.

Warren Bright, chief executive of propertyfinder.com, commented: “The housing market is undoubtedly slowing. The May rate rise has had an immediate impact on homebuyer confidence and fears of more to come are dampening expectations for house prices.  We would expect future price growth to moderate in line with current confidence levels.”

“Mervyn King has now made clear that higher rates are almost certainly on the way.  The MPC directly affects what happens to variable rate mortgages but recent developments in the bond markets make it much more likely that longer term fixed rates are going to rise as well.  Homebuyers may be wise to lock in sooner rather than later.”

Figure 1: graph - forecast annual house price growth by region


Two speed UK market continues

People in Scotland and Northern Ireland are far more optimistic about future house price growth than people in England where the majority of regions expect a slower rate of growth in months to come. People in London and the South East are the exception and still expect a growth rate above the national average.

Warren Bright continued: “Whilst most of the country is in slow down mode, a few regions continue to power ahead due to localised market influences.  Whilst most areas are conscious of the impact of rising borrowing costs, people in London and the South East remain confident that the market in these regions will continue to benefit from the wealth and success of the City.   

“Scotland and Northern Ireland remain optimistic due to the exceptional growth they have experienced lately.  They have been playing catch up in terms of house prices, particularly Northern Ireland, where until recently political turmoil had held the market back.  However, it is surprising – given recent growth rates – that people in Scotland and Ireland are not even more positive in their outlook.”

Housing market finds new level

Rates are biting but the picture is certainly not doom and gloom.  People do not expect house prices to fall - they simply expect growth to slow.  Prices have grown over 9% in the past year, with some areas – notably London, Scotland and Northern Ireland - by even more. 

This rate of inflation is not sustainable.  The research shows that price growth is expected to continue across the UK but at a more subdued rate, with people citing continued activity from investors and too few new homes being built as the primary reasons for the market to continue to grow. 

Warren Bright concluded: “The market is finding a new level but it remains strong and there is no sign of long term supply constraints easing any time soon.  However, there are potential disruptions on the horizon.  On top of another rate rise, the ongoing farce of HIPs is likely to cause further confusion in the market.”