The great house price crash that never was - Sarah Coles

At this stage, Nationwide is the only index showing price falls on an annual basis – down 2.7% in the year to April. The official statistics only take us as far as February – when they were up 5.5% in a year. We can expect them to show a smaller annual rise in March, but so far, it’s nothing like the falls that were forecast. Even if you look at the drop from the peak in August, we’re not seeing a massive collapse. Nationwide puts it at 5%, while Halifax says it’s 2%, and the Office for National Statistics calculates it at a less than dramatic 1.3%.

Meanwhile, this week, the narrative has turned distinctly more upbeat. There was positive news from the Bank of England, which showed that mortgage approvals for future purchases rose for the second consecutive month in March. It was from a low level, and approvals were still well below the monthly average approvals for 2022, but it’s a good sign.

The indices disagree slightly with one another, but they’re all finding the positives. Halifax has seen prices rise on a monthly basis since the start of the year. This week Nationwide said prices rose 0.5% in April – after falling for seven consecutive months. Meanwhile, Zoopla reported that demand hit its highest level so far in 2023, supply is up by two thirds, and sales are 10% ahead of their five-year average. It thinks the worst is over for the property market.

More positivity in the market owes an awful lot to the direction of travel of mortgage rates, which have been inching gradually lower since the peak in October last year. Moneyfacts figures show that averages wavered slightly in the wake of the surprise inflationary rise in March and the subsequent rate hike, but more recently they have started creeping south again. The average five-year fix was 4.97% earlier this week, and the average two-year fix is just a fraction higher – at 5.26%. They’re still far higher than before the wave of rate rises kicked off, but are well down from the peak and are set to head lower.

As ever with the property market, sentiment plays a major part too. The GfK confidence index shows that people’s confidence in their own finances has picked up slightly over the past three months – and is now around the level we last saw in February last year.

It feels fairly counter-intuitive at a time when prices are rising through the roof and there’s every sign of a global slowdown. However, there’s a growing sense that in the UK there’s a chance we might dodge a recession, and the strong labour market may continue to hold up and protect us from the worst economic pain. Meanwhile, people are increasingly convinced that inflation is finally on its way down. Of course, there are no guarantees that any of this will actually happen, but for the property market, it’s enough that people think it will.

Zoopla highlighted that first time buyers are helping to support the market: FTBs with a mortgage made up more than one in three sales in 2022. With house prices rising more slowly than wages, they could remain key to the health of the market for the rest of this year too. This is partly because runaway rents are up 11% in a year and the hikes are far from over, which is helping persuade people to buy. Renters are also likely to place higher value on certainty – both the prospect of being in control of deciding when they next move home, and being able to fix a mortgage rate for years.

But while there are several positive signs, it’s still too early to call the bottom. Confidence is moving in the right direction, but it’s still incredibly low by historic standards. Part of the problem is that we don’t know how long it’s going to take for inflation to fall back. We’re still expecting it to be much lower by the end of the year, but there’s a reasonable chance that stubbornly high food prices and rising wages will keep it elevated for a few months yet. Even when it does fall, it’s not going to mean a widespread drop in prices: in most cases, things are just going to get more expensive less quickly. And because our wages have fallen so far short of price rises, it’s going to take time for our spending power to catch up – so we’re still poorer than we were before inflation kicked off.

And while the Zoopla figures are positive, its view of demand is strikingly different to the RICS survey for March. That showed buyer demand, sales and house prices were down yet again. And while we don’t yet know whether this turned around in April – it would be a massive reversal of trends that have settled in for months. It may mean these positive signs aren’t replicated across the market.

It's also worth bearing in mind that things don’t always go as expected. If we get a fall in inflation and lower mortgage rates, we manage to avoid a recession and the employment market holds up, it all bodes well for the property market. However, if we get surprises or disappointments on any of these fronts, it could take a toll.

Meanwhile, although prices have backed off slightly, they’re still much higher than before the pandemic, which creates issues of its own for buyers. Zoopla has calculated that buyers need an income of £55,900 to buy a typical three-bedroom home - which is up £7,350 since 2020. It’s not just the deposit that’s a stretch, because when you add in the impact of rising mortgage rates, they have enormous ongoing monthly costs too.

In reality, if you’re not buying, selling, or borrowing more against the equity in your home (or planning to do any of these in the near future), it doesn’t make a vast difference to your pocket: just to your perception of your own financial security. However, if life in the property market convinces you to take the plunge and buy, it’s important to be aware that there’s no guarantee that falls are over. It makes sense to buy something you want to live in, and negotiate a price you can live with, so whatever happens to house prices in general – and the value of your home in particular – you’re still happy with the choice you made.

Roasts on the rise

The cost of a roast chicken dinner for four people has hit £8.68 - up £1.68 in a year, while the price of fish and chips is up of 19% to £9.These are the kinds of gems being pulled out of a new inflation calculator on the ONS website Shopping prices comparison tool - Office for National Statistics (ons.gov.uk).

And while it’s always interesting to know the price of a fry up has risen 24% in a year and a cheese omelette is up 41%, the calculator is actually a useful practical tool too.

You can use it to select the items that usually go into your shopping basket, check the price rises, and work out whether you need to allocate more to your food budget, or cut back.

Sarah Coles is Head of Personal Finance and Podcast Host for Switch Your Money OnHargreaves Lansdown​​​​​​​