New supply of homes for sale continues to edge up as pandemic-led reasons to move provide momentum and as some sellers look to take advantage of the house price gains over the last two years, according to Zoopla's latest house price index.
The portal's researchers believe that this is likely to continue in the coming months as price growth and high demand triggers more moves. However, the rise in new supply has not been enough to offset high levels of activity, so total stock levels remain constrained, which has continued to put upwards pressure on pricing. As a result, price growth in the UK over the last year up 11.8% in Wales to 3.2% in London. Yorkshire saw a 8.7% rise, the North West recorded a 9.4% uplift and the North East 7.5% gain.
Zoopla's city index saw Liverpool lead annual price growth with a 10.3%. Nottingham follows, registering 9.5% annual growth. Leeds saw a 8.5% gain and Sheffield 8.7%. This contrasts with an annual decline in prices of -0.2% in Aberdeen since February last year, and a -13.5% decline over five years.
Affordability levels are a key factor in the spread of price growth across the country. The largest price growth has been registered in markets with highest demand and lower average prices. The average price of a home in Wales is £186,200, compared to the UK average of £245,200. Changed working practices in the wake of the pandemic, as well as local economic conditions and property types are also factors at play in the range of value growth recorded across the country.
In London, the average house price is nearly 11 times the average income. This compares to the North of England, where the average house price is 5.1 times average earnings. This helps explain the current trends in price growth, with Wales being one of the most affordable markets, even with the growth in prices in recent years. Modest price growth in London means that affordability levels have improved in the capital, but they remain far above the rest of the country.
Zoopla say that another consideration for many buyers when it comes to affordability is the cost of mortgage finance. Mortgage rates have already started to rise after the recent rise in the Bank of England base rate to 0.75% and independent economic forecasters expect at least another 0.25% rate rise this year.
This will push up the cost of borrowing, which will create some demand among buyers keen to lock into a mortgage rate now. At the same time, there is increasing discussion among policy setters around loosening the stress testing rules for lenders and for new borrowers, which could make access to finance easier for potential buyers, especially as the cost of living rises.
Increased pressure on household finances, as well as the geopolitical uncertainty due to the tragic events in Ukraine, will act as a drag on buyer demand during the year. This will start to ease the upwards pressure on pricing, although the continued constraints on supply will put a floor under prices. All of these factors signal that potential sellers currently have a ‘window’ of strong buyer demand, especially those selling family houses.
Demand has eased slightly since the start of the year, but still remains unseasonably high, and some 65% higher the average level of demand registered over the last five years. There are two factors boosting demand at present. First is the continued demand for family houses, with the demand for three-bed houses more than twice as high as usual for this time of the year.
The second factor is a continued strengthening of demand in some key cities around the UK. Since January, demand has risen by 5% in Birmingham and 7% in Newcastle, while buyer demand has jumped 20% in Blackpool and 19% in Swindon since the start of the year. This trend has been mirrored in the rental market, with the opening up of cities leading to a boost in demand.
However, at the same time, demand in semi-rural and rural markets also remains strong in most markets. This demand has translated into elevated levels of activity in the first quarter of the year. While sales agreed are not as high as in Q1 2021, when many deals were being agreed by those hoping to benefit from the stamp duty, sales subject to contract in 2022 so far are more than 30% higher than Q1 in 2020. In London, sales agreed so far this year have exceeded those in the first quarter of last year, underlining the demand in urban areas.
The scale of demand means the pace of activity in the market has been maintained over the first quarter of this year. For homes that sell within six months, the average time taken between listing and agreeing a sale is 29 days, well down on the time to sell even at the start of last year.
The current window of strong buyer demand will lead to higher levels of activity in the short-term. However, we expect the economic headwinds, including the rising cost of living, higher mortgage rates and global uncertainty to act as a brake on house price growth which we forecast will ease to more sustainable levels over the course of 2022. It will also mark a return to transactions at levels seen pre-pandemic, resulting in 1.2 million transactions this year.
Gráinne Gilmore, Head of Research, Zoopla, says: “Buyer demand remains elevated as the trends that emerged during the pandemic - a reassessment among households about where and how they are living - continue to drive the market. Demand is strongest for family houses, indicating a continued appetite for additional internal and external space. But demand is up across nearly all property types, indicating that those thinking of moving are in pole position to sell. Given the tick up in new listings of homes for sale, there is now a wider choice of homes for movers and all buyers. The increased economic headwinds, including the rising costs of living and increasing mortgage rates, property price growth will start to moderate as we move through the second half of 2022.”
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