House price growth to halve by year end

House price growth to halve by year end
Mary Turner/Bloomberg

House price growth is estimated to halve by the end of this year as affordability constraints facing house buyers intensify, interest rates continue to rise and more stock comes to the market.

According to Rightmove’s latest house price index, these headwinds will likely bring down house price growth to around 5 per cent come December, taking the market firmly away from the double digit growth it has enjoyed over the past year.

Figures from the Office for National Statistics showed house growth already starting to revert back to single digits, from 11.3 per cent in February to 9.8 per cent in March. A further dip to 5 per cent would see growth more than halve.

The index also showed the average number of people searching for any individual property on Rightmove fell by 8 per cent in May compared to April. 

Though demand was still higher than May last year, and more than double the pre-pandemic five-year May average.

“After a very strong first half of the year, it is likely that affordability constraints will have a greater influence on market behaviour in the months ahead, with further interest rate rises anticipated,” Rightmove’s property science director, Tim Bannister, explained.

He said month-on-month price falls during the second half of the year are anticipated, with five consecutive interest rate rises since December compounded by more choice coming onto the market for buyers.

“We expect this to bring house price growth by the end of the year to around the 5 per cent we originally predicted in December,” he said.

Director of property lender MT Finance, Tomer Aboody, said the redirection of growth in the market has nudged more homeowners to sell now.

“The turning tide is providing an impetus for sellers who are keen to take advantage of potentially the final few months of the flurry, and sell at a record price,” Aboody noted.

“Buyers are increasingly cautious in their bidding, not so prepared to stretch themselves and also shying away from taking on renovations or other home improvements, due to the uncertainty in terms of prices for material and labour.”

North London estate agent and former RICS residential chair, Jeremy Leaf, said Rightmove’s findings have been defying reason for several months.

“But finally affordability issues, prompted by the rising cost of living and particularly energy and interest rates, are having an impact,” said Leaf.

“Hopefully, the change in circumstances will mean vendors set more realistic asking prices so that the level of transactions, which are important for the health of the market, can keep up as closely as possible with last year’s.”