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Recent Trends in UK’s Housing Market: What You Need to Know

By August 7, 2023No Comments

The UK’s housing market has seen contrasting developments over the past week, posing a challenging environment for potential homebuyers.

House Prices:


  • Early last week (first week of August 2023), the Nationwide building society announced a 3.8% drop in house prices over the last year. This decline is the most significant annual fall since 2009.
  • Yet, average house prices in the UK remain elevated at £260,828 as of July, just slightly below the peak from the previous August.


A major reason for this high price level has been the pandemic-induced demand. Encouraged by the stamp duty holiday and the shift to work-from-home setups, there has been a surge in buying activity. The resulting increase means that the average house price now stands £45,000 higher than in February 2020, the last full month before the pandemic’s onset.


Mortgage Dynamics:

Despite the fall in house prices, the mortgage landscape is not necessarily in favour of buyers. The Bank of England has hiked interest rates continuously, with the most recent increase moving rates from 5% to 5.25%.

As a consequence, mortgage rates have soared. The average interest on a two-year fixed deal is currently 6.85%, a significant leap from roughly 2.5% between July and September 2021. Meanwhile, for a five-year fixed mortgage, the rate stands at 6.37%.


First-time Buyers:

For those looking to step onto the property ladder and join the UK’s Housing Market, the situation is a mix of challenges. The primary obstacle has historically been the deposit. To illustrate, between July and September 2021, the average house price was £208,757, requiring a 10% deposit of £20,875 — equal to 55% of the average annual pay of just over £38,000.

Today, while deposit requirements remain substantial, they are slightly less burdensome relative to earnings due to the slight drop in house prices and a rise in average incomes. However, mortgage costs are now higher, causing a typical first-time buyer’s monthly mortgage payments to comprise 43% of their take-home pay, up from 32% a year ago.



There’s potential good news on the horizon. The Bank of England expects the unemployment rate to rise only slightly from 4% to nearly 5% by 2026, which is still relatively low historically.

If wage growth remains strong, house prices could see further declines, improving overall affordability, especially if the interest rates begin to decrease after their current peak.

In essence, while the drop in house prices appears favourable, the complexities in mortgage rates and overall costs suggest that potential homebuyers need to assess the situation carefully before making decisions.


Risk Warning: The information provided above is intended for general awareness and does not constitute financial advice. Before making any financial decisions or investments, individuals should perform their own due diligence and research.


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