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  • Writer's pictureDonna Stonelake

Understanding the Dynamics of House Prices Amidst Economic Uncertainty

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Understanding the Dynamics of House Prices Amidst Economic Uncertainty

In February, house prices witnessed a 0.7% growth, contributing to an annual increase of 1.2%, marking a positive shift since January 2023. This surge can be attributed to heightened demand at the onset of the year, stimulating market activity.

However, the economic landscape remains ambiguous, with conflicting indicators clouding the near-term outlook. The Bank of England (BoE) grapples with balancing inflationary pressures against sluggish economic growth. The UK's descent into a technical recession in late 2023 juxtaposed with persistent wage growth outpacing inflation, as reported by the ONS, further complicates the scenario. Consequently, projections for the first base rate cut have been postponed, with Oxford Economics now eyeing June for the initial adjustment, followed by two subsequent cuts anticipated later in 2024.

The prevailing economic uncertainty, coupled with an uptick in swap rates, has prompted mortgage lenders to exercise caution. Many have revised their rates upwards after substantial reductions earlier in the year, anticipating swift base rate adjustments. Delays in rate cuts are poised to prolong higher mortgage rates, moderating demand growth and alleviating upward pressure on housing prices.

Despite these challenges, buyers have capitalised on previous mortgage rate declines, driving market activity. Mortgage approvals surged to 55,200 in January, marking the highest figure in 15 months, consequently bolstering sales agreements, which soared by 27% in February compared to the same period last year, and even surpassed the 2017-19 average by 13%, as per TwentyCI.

However, the surge in early activity indicators has yet to translate into completed transactions, with January witnessing 68,090 completed transactions, a figure 15% below the 2017-19 average. Nonetheless, this is expected to evolve in the upcoming months, buoyed by the heightened number of sales agreements in the initial months of 2024.

Furthermore, regional disparities persist in house price movements, as depicted by lagged Land Registry data. Notably, affordability constraints have led to price falls in at least half of the local authorities across all regions, particularly impacting the North and Midlands, where 65% witnessed price declines. Affordability pressures remain more pronounced in the South, with 92% of local authorities experiencing annual falls.

Additionally, annual rental growth across the UK moderated to 7.8% in January, down from 8.2% in December. Scotland stands as the sole region with annual growth exceeding 10%, owing to rent control policies curbing supply and exerting upward pressure on newly agreed rents. Other northern regions, including the North East and North West, also witnessed above-average growth rates, highlighting regional nuances in the rental market.

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