Is the housing bubble set to burst? Prices and mortgage approvals slow

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Could the housing market finally be starting to cool down? 

It has been a record-breaking two years for property prices, and even soaring living costs haven’t dampened our appetite for new homes.

But last week experts agreed there is evidence the bubble is about to burst.

Slowdown: The annual rate of house price growth slipped to 11.2% in May, down from 12.1% in April and 14.3% in March, according to Nationwide Building Society

The annual rate of house price growth slipped to 11.2 per cent in May, down from 12.1 per cent in April and 14.3 per cent in March, according to Nationwide Building Society.

And Sir Jon Cunliffe, deputy governor for financial stability at the Bank of England, noted last week that the market is ‘starting to turn’ as economic uncertainty forces homeowners to think twice before moving.

But is he right? Experts have been predicting a decline in house prices since the end of last year, yet so far it has failed to materialise. 

Even as annual growth stalls, it is still in double digits. Nationwide figures also show prices edged up by 0.9 per cent in May — the tenth consecutive monthly rise.

So what does the future hold for the housing market? Here, Money Mail helps you navigate the headlines…

Rise of ‘secret sales’

House sales boomed when the first lockdown was lifted in summer 2020, as the Government’s stamp duty holiday helped to fuel demand — and prices.

Families then accrued significant savings during successive lockdowns, which left many looking for bigger homes and gardens in a so-called ‘race for space’.

Even after the stamp duty deadline passed in September 2021, property prices continued to defy gravity.

According to the Office for National Statistics (ONS), which looks at completed home sales, the average house price in March this year was £278,436.

And in May, Nationwide, which bases its figures on mortgages agreed, put the average cost of a home at £269,914.

The cost-of-living squeeze and rising interest rates — which affect mortgage rates — were expected to pour cold water on the market, but estate agents say this is not the case.

Price cuts: Property portal Zoopla has also found more than one in 20 homes for sale last month had their asking price slashed. On average, prices were cut by 9%

And competition in property hotspots remains fierce. There have been increasing reports of gazumping — where another buyer puts in a higher bid after a property sale has been agreed. 

And secret sales, when homes are snapped up before they even reach the market, are on the up, too.

Around one home in ten sold this year was not publicly marketed, according to national estate agency Hamptons.

Joel Edgerton, of estate agency Regan & Hallworth, in Wigan, says: ‘If we put a nice house in a good area on the market, there will still be multiple buyers and we will still see sealed bids and people offering over the asking price.’

Alice Haine, personal finance analyst at BestInvest, adds: ‘The figures show that despite a pandemic, four consecutive interest-rate rises and the deepening cost-of-living crisis, house prices remain robust.’

Signs of cooling

Experts agree that any decline in prices will be a gradual one.

Sir Jon Cunliffe insisted last week that there would be no market ‘crash’ as prices would instead slowly correct themselves after two years of growth.

Jason Tebb, chief executive officer at OnTheMarket, says: ‘The market is now rebalancing, although it will take time before this becomes more prevalent. It’s a complex market with regional differences continuing to play a part, and one size doesn’t fit all.’

In December, Money Mail asked Tarrant Parsons, an economist at the Royal Institution of Chartered Surveyors (RICS), for his predictions for how the market would change in 2022, and he said it would ‘inevitably slow’.

Cracking down: Figures from the Bank of England released last week show that mortgage approvals have fallen to their lowest level since June 2020

Cracking down: Figures from the Bank of England released last week show that mortgage approvals have fallen to their lowest level since June 2020

He now says: ‘The pace of house price growth that has been sustained is slightly stronger than was envisaged at the end of last year. 

‘But with headwinds building across the economy, this is likely to weigh heavily on demand and slow house price growth towards the end of the year.’

Figures released last week from the Bank of England show that mortgage approvals have fallen to their lowest level since June 2020. 

And property portal Zoopla has also found that more than one home in 20 for sale last month had its asking price slashed.

On average, prices were cut by 9 per cent. Data from UK Finance suggests the number of people moving home dropped by 42 per cent in the first quarter of this year compared with the same period in 2021. 

The downward trend is being driven by the cost-of-living squeeze, which is making homeowners more cautious about moving house.

Tim Bannister, data director at Rightmove, says: ‘Over the next six months we expect that a combination of more homes for sale and affordability considerations brought on by the rising cost of living will ease some of the frenetic pace of the market.’

Research by Nationwide suggests more homeowners are choosing to renovate their properties rather than sell up.

Some 54 per cent of those surveyed by Censuswide said they were considering enhancing their homes. 

A third were eager to improve the energy efficiency of their property to insulate themselves from rising gas and electricity bills.

Winners & Losers

The property boom of the past two years has, unusually, been driven by areas outside London.

Data from the ONS shows the East Midlands experienced the highest annual house price growth in the year to March 2022, with prices rising by 12.4 per cent on average.

By contrast, London recorded the lowest annual house price growth at just 4.8 per cent.

Experts say this was down to the work-from-home culture that emerged during the pandemic, prompting many city-dwellers to move farther afield.

But London remains the most expensive region — despite slowing growth — with the average property price reaching £524,000 in March 2022, according to the ONS.

The North East has the lowest average price of £155,000.

However, many are wondering whether this trend is set to reverse as life returns to normal post-lockdown.

A Nationwide survey suggests the appetite for rural homes is starting to fade as more people begin moving back to cities.

Only 12 per cent of those considering a home move said they wanted to get away from urban space, down from 25 per cent in April 2021.

Robert Gardner, chief economist at Nationwide, says: ‘Those pandemic factors are still there in the background, but we are certainly seeing a revival of the housing market in urban areas.’

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