Are rising house prices impacting demand?

Brokers share their views

Are rising house prices impacting demand?

Many expected that steep interest rates would prompt a house price crash – with mortgages becoming increasingly unaffordable, it was predicted that house prices would slump to put them within range. However, the stability of the UK housing market shows no signs of wavering – and so, could the opposite be true? Could higher house prices actually be impacting demand?

The average price of a property put up for sale rose 0.9% to £362,839 in February, according to the latest house price index from Rightmove.

Are house prices really rising?

Graham Cox (pictured left), founder at Self Employed Mortgage Hub, said the potential solutions to address the current housing market dynamics appear straightforward; a reduction in either house prices or mortgage rates could catalyse increased activity.

However, amid this discussion, Cox added that doubts linger regarding the actual trajectory of house prices.

“It is noteworthy that indices like those provided by Nationwide and Halifax, while widely referenced, may not fully capture the nuances of market movements,” he said.

These indices, by design, Cox said, exclude cash transactions and instead reflect average transaction values, which might not accurately depict underlying house price trends.

Delving deeper, he believes it is plausible that recent fluctuations in the composition of property transactions could skew these average figures.

For instance, Cox said that a surge in the proportion of high-value property sales could artificially inflate the calculated average house price, giving the impression of an upward trend even if prices are, in reality, declining.

“This scenario gains credence when considering the notable decrease in first-time buyer transactions over the past six months, typically associated with lower-priced properties,” he said.

Have higher house prices affected demand?

Luke Thompson (pictured right), director at PAB Wealth Management, said when advising prospective first-time homebuyers, it is paramount to instil the understanding that purchasing property is not solely about turning a profit.

“While there may be aspirations to sell and transition in the future, the primary focus should be on securing a place to call home rather than viewing it purely as an investment venture,” Thompson said.

In the grand scheme of things, he said that opting to own rather than rent often proves to be a more financially prudent decision over the long haul, and Thompson believes it is imperative to recognise that while house prices may experience fluctuations, so too do rental rates.

By owning property, he said that individuals gain a degree of stability and control over their housing costs, mitigating the uncertainty associated with fluctuating rental markets.

“Reflecting on recent market dynamics, it is evident that the property landscape has exhibited notable resilience since the onset of the year, particularly when compared to the preceding months of 2023,” Thompson said.

Despite the adjustment to higher interest rates, he added that there is a growing sense of adaptability among homeowners.

While the prospect of increased mortgage payments may not be met with enthusiasm, he said there is a palpable acceptance and willingness to navigate this new reality.

Indeed, the prevailing sentiment suggests that the spectre of higher interest rates and house prices, Thompson said, is not dissuading individuals from pursuing homeownership in the same manner observed during the summer months.

“This resilience underscores a broader societal shift towards embracing financial challenges head-on and adjusting strategies accordingly to achieve long-term housing goals,” he added.

Do you believe rising house prices are impacting demand in the market? Let us know in the comment section below.