Deurbanization Continues

Data released on Monday showed that the average UK house price hit a record high this month, but the current UK market is showing that most homeowners will pay anything to escape life in the capital, as a trend to deurbanization continues.

It’s a great time to be a UK homeowner with a house to sell as there is reduced stock in the market, and hopeful homebuyers – backlogged after holding off during the pandemic – have been keen to finalise mortgage deals before interest rates rise higher. In fact, Rightmove reported that there were over twice as many buyers than sellers this month, the biggest mismatch ever recorded by the UK housing company. Buyers had to act fast amid all that competition: an unprecedented 22% of homes that were put up for sale were purchased within a week. And they had to pay more too: the average house price in the UK rose by 1.7% this month from last, the biggest March increase in 18 years. That brings the yearly increase up to 10.4%, and means the UK’s average house price is now nearly £355,000 ($470,000) – the highest on record.

London was the only region to see a drop in house prices this month. Once the breeding ground for commuters, plenty of the city’s dwellers have left to work remotely from pastures new. Specifically greener, quieter pastures; UK homeowners are after bigger houses with room for offices, and Rightmove says the scenic Cotswolds and peaceful Suffolk have been some of the new go-to spots for homebuyers recently.

However, Rightmove reckons buyers will outnumber sellers for a while still but thinks the market could slow down in the second half of the year. After all, soaring inflation and rising interest rates – which are set to push up mortgage payments – will probably put potential homebuyers off, and might make it impossible for them to buy even if they wanted to. Robert Gardner, Nationwide’s chief economist, said: “A combination of robust demand and limited stock of homes on the market has kept upward pressure on prices. The continued buoyancy of the housing market is a little surprising, given the mounting pressure on household budgets from rising inflation, which reached a 30-year high of 5.5% in January, and since borrowing costs have started to move up from all-time lows in recent months."

House prices soared during the Covid pandemic due to policies such as the stamp duty holiday and the new mortgage guarantee, as well as the 'race for space' which saw more people looking for bigger properties following the move to working from home. And while house prices could yet stabilise this year, demand remains strong. Rightmove said in January that the number of prospective buyers enquiring about homes was up 15% on this time last year. 

But the impact of soaring inflation, energy price rises and increasing interest rates could yet prove influential and make it more expensive to buy a house. The Bank of England has increased interest rates twice in the last three months. Growth has exceeded earnings growth over the past 12 months, and the ratio of house prices to average earnings has increased to a record high, Nationwide says. A 10% deposit is now equivalent to 56% of total gross annual earnings, and this is proving a particularly changing disparity for first-time buyers. Yorkshire Building Society says that UK house sales to first-time buyers reached their highest level for 19 years in 2021.  “Clearly, new buyers have not been deterred by the price of a typical first-time buyer home, which has increased by 9% to £222,997 in the year to October,” the building society said.

The most recent ONS (Office of National Statistics) data revealed the highest December rise was seen in Wales (13%), followed by Scotland (11.2%), then England and Northern Ireland (10.7%).

Meanwhile, Mountain Ash in Wales was the place in the UK where house prices rose the most in 2021, according to Rightmove, which experienced a 31% increase in asking prices for homes. Wales was also the regional asking price hotspot in 2021, with average prices up 10.5% in Wales compared to 2020. This was followed by the South West (9.6%) and the South East (9.1%).

Source: Rightmove and Nationwide