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Is house price growth starting to slow?

Is house price growth starting to slow?

Category: Mortgages

Updated: 02/06/2016
First Published: 01/06/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Rising house prices affect different people in different ways. Current homeowners, for example, no doubt relish the fact that their level of equity is growing, while first-time buyers will be increasingly disheartened by the size of the deposit they'll need to amass in order to take that first step, which means the fact that house price growth appears to be slowing will come as welcome news to would-be buyers.

New figures from Nationwide show that average house prices rose by 4.7% year-on-year in May, a slight dip from the annual growth rate of 4.9% recorded in April and a far cry from the rates of 11%+ recorded two years ago. Monthly growth rates appear to be stabilising, too, with average house prices rising by 0.2% in May, the same as that recorded the previous month and well below the rise of 0.7% seen in March.

Of course, continued growth, no matter how small, still means that the average house price across the UK has hit a fresh high, now standing at £204,368. However, the fact that growth rates are now far less extreme than those seen at the height of the recovery suggests a more stable, robust housing sector – and a healthier market overall.

But the question is, will this picture of normalcy continue? As yet it's difficult to gauge, with Nationwide's chief executive Robert Gardner saying that the strength of activity has been dramatically impacted by the recent stamp duty changes and the volatility that preceded them: "Indeed, the number of residential property transactions surged to an all-time high in March, some c.11% higher than the pre-crisis peak, as buyers of second homes sought to avoid the additional tax liabilities," he explained.

Data suggests that the purchase of buy-to-let properties and second homes was a key driver behind this surge in activity, and as a result, house purchase levels are expected to fall in the months ahead, with many buyers having brought forward transactions in order to beat the stamp duty hike.

But that's not to say things won't bounce back. "Healthy labour market conditions and low borrowing costs are expected to underpin a steady increase in housing market activity once stamp duty related volatility has passed, providing the economic recovery remains on track," continued Robert. However, he cautions that this could "tilt the demand/supply balance in favour of sellers and exert upward pressure on price growth", which means slower house price rises may not be the norm for long.

This means that, if you're thinking of taking that first step on the housing ladder, now could be the time to do it. Slower price growth combined with a truly excellent borrowing landscape means you could secure a low-cost mortgage that can keep your repayments in check, even if you've only got a minimal deposit, and if you take the plunge soon you may be able to avoid further house price rises. Start the process by checking out the top first-time buyer mortgages, and see if you can benefit from the current market.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.