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House prices hit another new high – but a slowdown is coming

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Street in Acton, London - William Barton/Alamy Stock Photo
Street in Acton, London - William Barton/Alamy Stock Photo

The average asking price for a home grew by 10pc to £375,501 in May, as another record high pushed the property market to fever pitch.

Asking prices have now risen by more than £55,000 since the pandemic started in 2020, compared to a £6,000 rise in the previous two years, according to the property website Rightmove.

Properties changed hands faster than ever, with sellers taking just 31 days to find a buyer on average. However, Tim Bannister, of Rightmove, warned the market could slow as rising interest rates and the cost-of-living crisis squeezed affordability.

“We anticipate that the effects of the increased cost of living and rising interest rates will filter through to the market later in the year,” he said. “A combination of more supply of homes and people weighing up what they can afford  will help to moderate the market.”

There were signs this month that the market has already started to cool. While the number of buyers contacting estate agents was still almost a third higher than the normal 2019 market, it had fallen by 14pc year on year. Available properties have also dropped, down 16pc compared with last year.

Average monthly mortgage payments of £901 have now overtaken rental payments at £887, following four consecutive interest rate rises by the Bank of England. However, historically low rates meant that mortgage payments were only 11pc higher than ten years ago, while rental payments were 40pc higher.

While monthly mortgage payments for a first-time buyer have remained relatively stable due to low interest rates, it has become much more difficult to meet deposit requirements.

Rightmove found that 10 years ago, a solo buyer on an average salary, borrowing 4.5 times their income, would have to build up a 25pc deposit on a typical first home of £35,053. Today, the equivalent buyer would need a 34pc deposit of £74,402.

The firm said a couple on an average salary should still be able to afford a typical first-time buyer home on a 10pc deposit, although the required sum has still increased 56pc to £22,312 in the past decade.

Mr Bannister said: “This shows how it has become increasingly difficult for an average first-time buyer to afford a home on their own. As interest rates are predicted to rise further during the course of 2022, many buyers will be looking to lock in mortgage deals now before further rate rises.

“With so many variables affecting house prices and affordability, it’s a reminder that the market is extremely difficult to predict, and those looking to buy will be prioritising their own needs and what they can afford rather than waiting to try and time the market.”

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