Mortgages  

House prices will 'gradually deflate'

House prices will 'gradually deflate'

House prices dipped 3.7 per cent between June and July this year, according to the latest Office for National Statistics data.

The dip, dubbed a “significant drop” by experts, signalled the start of what some are calling a “gradual deflation” of house prices over the next few months.

The average UK house price was £256,000 in July 2021, down £10,000 compared to June - but still £19,000 more than the price of a house in July 2020.

Karen Noye, mortgage expert at Quilter, said due to the continued hybrid working environment - compounded by the potential for a fourth lockdown later this year - house prices will experience a slow, rather than rapid, decline.

“Many have adopted a ‘wait and see’ approach with their employers,” she explained. As “a much less office-centric culture” takes hold, Noye said “there will still be a slew of people looking to move to take advantage of more space further from large cities”.

She continued: “House prices are therefore more likely to gradually deflate opposed to truly crash, as we head into the autumn and winter, and in some locations may still rise.”

In London - unlike much of the rest of the UK - some homebuyers and buy-to-let investors are already making savings on flats they had viewed just one year earlier, leading brokers to dub the market “completely region dependent”.

Joshua Gerstler, chief financial planner at The Orchard Practice, said: "The property market will have a lot on its plate in the year ahead.”

He referred to “the looming increases” in National Insurance and income tax on dividends, which “will mean less money in people's pockets at the end of the month, and therefore less to save towards a deposit”.

Earlier this month, the UK prime minister raised NI despite his party's manifesto promise to the contrary, in a bid to fund the NHS and social care.

“Psychologically, confidence [in the property market] will take a hit, too, which impacts demand. This is likely to lead to a slowdown in house price growth,” Gerstler concluded.

Some are reluctant to predict the outcome of the housing market a year on from the pandemic, due to the fact too many factors still hang in the balance.

“The housing market depends on so many variables that it always has the power to surprise,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown.

“Low rates and strong demand could continue to support price rises,” she continued.

“Alternatively, higher unemployment or new lockdowns could damage confidence in the market. 

“Then again, higher inflation could persist and persuade the Bank of England to revisit interest rates sooner rather than later next year, which would mean buyers face higher mortgage payments, which in turn could hit the market.”

ruby.hinchliffe@ft.com