New restrictions to control the spread of Covid-19 are set to support buyer appetite in the near-term, according to our House Price Index.
UK house prices continued to climb in August, with the annual growth rate edging up to 2.6%, from 2.5% in July.
It means that the average UK house price is now £218,262, according to our latest House Price Index.
What’s happening to house prices?
Annual house price growth in August ranged from 1.7% in the north east, to 3.3% in the north west, Yorkshire & the Humber, and Wales.
Eight of the 20 cities tracked by our House Price Index had annual house price growth of more than 3%.
Nottingham and Manchester led the pack, with house prices up by more than 4% year-on-year. Only Aberdeen registered a decline.
What’s driving these figures?
A mismatch between buyer appetite and the number of homes for sale is continuing to support house prices.
And as new buyers continue to enter the housing market, the impetus for price rises shows no signs of slowing.
Buyer demand since the start of the year is now 39% higher than the same time spell in 2019, with the pandemic driving much of this, as last month's House Price Index revealed.
The uptick in buyers has also led to more homes coming onto the market, as homeowners look to sell their existing property and buy elsewhere. The supply of homes for sale is now 10% higher than a year ago.
Meanwhile, new sales agreed over the last nine months are 3% higher than the same period last year – even with the closure of the housing markets across the UK during lockdown.
But the three- to four-month lag between sales being agreed and legal completion means that the number of homes sold this year is set to be 15% lower than in 2019, with transactions spilling over into 2021.
Who’s interested in buying right now?
First-time buyer appetite to get onto the housing ladder jumped when the English housing market reopened for business in May after a 50-day shutdown.
However, it has softened over the last two months as growing economic uncertainty and reduced availability of higher loan-to-value mortgages hit first-time buyers.
And while first-time buyer demand remains well above 2019 levels, it is now back in line with pre-pandemic levels.
But existing homeowners are taking up a greater share of home moves. Homeowner appetite to trade up or down the housing ladder is 37% higher than pre-Covid-19 levels and is 53% higher than this time last year.
This in turn is resulting in more homes coming onto the market at a higher price point.
Richard Donnell, research and insight director at Zoopla, said: “A change in the mix of buyers is supporting market conditions with sustained demand from equity rich existing owners seeking more space and a change in location.
“In contrast, first-time buyer demand is weakening. First-time buyers have been a driving force of housing sales over the last decade.
"They remain a key buyer group but lower availability of higher loan-to-value mortgages and increased movement by existing homeowners means a shift in the mix of buyers into 2021.”
What’s in store for the rest of the year and into 2021?
We don’t expect much change in current housing market trends over the rest of the year, although a further softening in buyer demand is likely over the coming months.
Donnell explained: “Housing market conditions remain strong as new restrictions are introduced to control the spread of Covid-19. These changes are likely to continue to support housing demand in the near-term as the importance of the home grows.
“However, the housing market will not remain immune to the impacts of weaker economic growth and rising unemployment.”
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