06 Jun 2023

UK Housing Market Sees Biggest Increase of the Year

Category: House Prices

The housing market has seen a higher level of activity than expected since the start of 2023. A delayed response to this forced May to experience a 1.8% increase in property prices, significantly higher than its historic average of 1.0%.

New sellers are growing in confidence by responding to the improving UK housing market, with property prices consequently hitting a record high in May.

Author: Becky Mundie

Digital Marketing Executive

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+1.5%
Annual Price Growth from 2022
+1.8%
Monthly Price Change
+3%
Buyer Demand vs 2019

Property Prices

The UK housing market experiences a busy pattern during this time of year but this May saw the average price of properties coming to the market jump by £6,647 to £372,894. This impressive 1.8% rise is the largest of the year so far, 1.5% higher than the previous year, and higher than what was expected from the start of 2023.

It has been an uphill battle for the market to recover from the pandemic. However, in May the number of agreed sales reached just 3% behind the pre-pandemic market of 2019. As for reaching the agreed sale prices, the discounts from the final asking prices steadied at an average of 3.1%. This reflects normal market levels and home-movers’ confidence in the outlook of the property market.

Buyer Demand

In May, buyer demand in the second-stepper sector rose 3% above the pre-pandemic 2019 level, while the first-time buyer sector increased by an impressive 6%. As for top-of-the-ladder properties, buyer demand is 1% lower than it was in 2019.

While top-of-the-ladder properties are selling faster than in 2019, the demand is lower. This is due to the over-optimism of sellers, who are setting higher prices to wait for the perfect buyer before lowering the cost if it does not immediately sell. While this may not bemuse sellers, as they are not often under financial pressure to sell, overpriced properties stand out and become undesirable. Discretionary buyers hold back in consequence.

Properties on the market for over a month grow stale. Currently with an average of 67 days before agreeing on a sale, it is almost double the 35-day average from this time last year for top-of-the-ladder properties to find new owners. This combined with the undersupply of homes across all price points only makes the price divide appear significant. Understanding this is key for investing in the UK property market.

Mortgage Rates

Contrary to the year’s forecast interest rates, the base rate rose to 4.5% in May from 4.25% in March. The average mortgage rates remain steady week-on-week despite an increase by the BoE. Even with the higher rates, the average 5-year fixed-rate mortgage with a 15% deposit offers a rate of 4.56%. This is still lower compared to the rate of 5.89% in October 2022.

This is contributing to that growing home-mover confidence. While rates remain steady under the growing base rate, movers can easily plan for expected mortgage costs as they begin to understand the market’s dynamics.

CityRise Verdict

The UK housing market is highly price sensitive. Homes that are the most accurately priced attract the most interest and buyers, so sellers are setting competitive and realistic expectations for the current market. This makes overpriced homes stand out and become stale after a month on the market, with affordable homes in residential areas seeing higher demand and selling much quicker.

Movers are growing in confidence and beginning to understand the market and its dynamics. They are not being deterred by changing interest rates as they have been in the previous months and can easily plan for the expected mortgage costs.

With this growing confidence, homeowners mainly come to the market to relocate. They can gain capital from their current home by choosing a larger property within their budget. Buyers are migrating from cities and urban areas to coastal regions, particularly the North West. Here, properties are bigger and more space is available within their budgets. These are prime locations when building a property investment portfolio.