House price growth slows as owners renovate

Lender warns of further slowdown with consumer confidence at a record low and interest rates rising

THE property market is losing momentum as a result of rising interest rates and soaring inflation, with homeowners preferring to renovate their homes rather than move.

House price growth fell by one percentage point last month according to Nationwide, the building society.

Property values jumped 11.2pc in the year to the end of May, marking a slowdown in annual growth rate of 12.1pc in April. In cash terms, the average home increased in value by £2,294 from April to May this year, reaching £269,914.

Sir Jon Cunliffe, the Bank of England’s deputy governor, said he expects the housing market to slow further.

“The Bank expects the economy to slow further, to slow quite a lot over the next year or so and I think, yes, that will have an impact on the housing market,” he told ITV News.

Sir Jon and his colleagues on the Monetary Policy Committee have already raised interest rates from 0.1pc in December to 1pc now and borrowing costs “may well have to rise further” as officials seek to control inflation. But he denied the housing market is in a bubble.

A national shortage of homes for sale has kept prices high, but consumer confidence has fallen to a record low and a slowdown in price growth will follow, Nationwide warned.

More than half of homeowners, 54pc, are considering enhancing their homes rather than moving, a survey by Censuswide found.

Maximising or adding space was the driving factor for home improvements, while a third said they wanted to improve energy efficiency or reduce the carbon footprint of their home. This comes as energy bills have soared in recent months, rising on average by £693 in April. Tomer Aboody, of property lender MT Finance, said although there has been a squeeze on people’s purses, disposable income was being used to add value and improve quality of life.

“This will be something to watch closely in coming months with higher costs of such works and inflation hitting homeowner budgets,” he said.

Robert Gardner, of Nationwide, said he expected the housing market to slow as the year progressed.

“Household finances are likely to remain under pressure with inflation set to reach double digits in the coming quarters if global energy prices remain high. Measures of consumer confidence have already fallen towards record lows,” he said.

Jonathan Hopper, of buying agents Garrington Property Finders, said there has been a “decisive change” behind the scenes and that the current momentum could only last so long.

He said: “Where previously price growth was fuelled by a market brimming with confidence, today’s market is being fuelled by buyers’ desperation to find a home before interest rates rise further and the cost of living bites deeper.”

Sellers in overheated regions have started to rein in their most optimistic pricing aspirations as buyers regain power, Mr Hopper added. Amey Hellen, of Derby-based estate agents Boxall Brown & Jones, said prospective buyers had started to re-evaluate whether it was a good time to buy.

“May was exceptional for exchanges and completions, probably our busiest month since the end of the first pandemic lockdown, but felt quieter in terms of prospective buyers looking to purchase homes,” she said.

Alice Haine, of Bestinvest, the fund shop, said the Nationwide figures were a further blow to the housing market after mortgage approvals for house purchases – an indicator of future borrowing – fell to the lowest level since June 2020.