Is the Housing Market Finally Cooling?

After 11 straight months of house price rises, there may finally be some signs that the property market is starting to cool down. That’s according to one of the UK’s leading mortgage providers, who reported on Wednesday that there has been a recent fall in mortgage activity and a year-on-year reduction in demand for properties, despite another monthly price increase.

House Prices Rise Again – But Buying Demand Falls

According to the latest Halifax House Price Index, property prices increased again by 1.0% in May, reaching a new record average high of £289,099.

Despite the increase, the lender said it believes that there are signs of the market “cooling,” with fewer people taking out mortgages and overall demand down compared to a year ago. This isn’t too much of a surprise given the very real cost of living crisis currently impacting households and families across the country.

While house prices have surged by 74% over the last 10 years (and even higher in many parts of the country), growth has started to slow over recent months compared to the start of the year – but annual growth still remains in double digits at 10.5%.

“Despite the very real cost of living pressures some people are experiencing, the imbalance between supply and demand for properties remains the primary reason driving the continued climb in house prices” said Russell Galley, Halifax Managing Director.

“However, the housing market has begun to show signs of cooling. Mortgage activity has started to come down and, coupled with the inflationary pressures currently exerted on household budgets, it’s likely activity will start to slow.

“So, there is perhaps one green shoot for prospective purchasers; with overall buying demand down compared to last year, we may be past the peak sellers’ market.”

Number of Approved Mortgages and Transactions Falls

Delve deeper into the figures and there are certainly some interesting numbers.

The latest statistics from the Bank of England show the number of approved mortgages fell by 5.1% in April, while year-on-year approvals dipped by 23% compared to April 2021.

With rising inflation starting to bite hard for people up and down the UK, it’s perhaps little surprise to see fewer people taking out mortgages, especially when coupled with recent interest rate hikes that have increased the cost of borrowing.

There are also some signs that this is having an impact on property sales. Monthly UK property transaction data published by HMRC shows that transactions in April were down by 4,370 on March, a fall of 3.9%. Year-on-year seasonally adjusted transactions were down by 12.1% compared to April 2021.

Will There Be a Crash?

Despite signs of cooling, demand remains relatively high, while there continues to be a shortage of properties on the market – and especially in terms of housing stock that people actually want to buy. 

While it’s impossible to predict the future, these factors lead many people to believe there is likely to be a slow down and cooling in the market, as we have perhaps started to see already, rather than an outright property crash.

The latest figures follow on from a decade of house price rises, with the average UK home increasing by a staggering 74% – or £123,016, on average. This figure is even higher in regions like London and the South East, where prices were already high a decade ago. In the capital, prices have surged by around 84%, adding £247,638 to the price of a property.

With inflation hitting a 40 year high of 9% in April and widely expected to reach 10% in the summer, we’ll be watching closely to see what happens to the property market as the cost of living puts an even greater squeeze on household budgets and interest rate rises take effect. 

For investors, it’s important as ever to closely monitor the market and get advice from a property investment expert before making any investment decision.

If you’d like to speak to one of our property portfolio managers, please give us a call on +44 (0) 1708 922 222 – or get in touch to request a callback.



Important note: The information provided in this article is general in nature and does not constitute personal financial advice. If you are unsure whether an investment is right for you, please seek professional advice. If you choose to invest, the value of your investment can both rise and fall so you may get back less than you put in.