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First monthly rise for house prices since March

An aerial view above the rooftops of terraced houses in northern England

House prices rose in October but are predicted to fall further next year.

UK house prices increased by an average of 1.1% from September to October, ending a run of six consecutive monthly falls, according to the latest House Price Index from Halifax.

The UK's largest mortgage lender said that the typical home now costs £281,974, up around £3,000 on the previous month.

Compared to October last year, prices were 3.2% lower and Halifax said that overall the housing market remains "subdued".

Affordability pressures

"Prospective sellers appear to be taking a cautious attitude, leading to a low supply of homes for sale," said Kim Kinnaird, director of Halifax Mortgages. "This is likely to have strengthened prices in the short term, rather than prices being driven by buyer demand, which remains weak overall.

"While many people will have seen their income grow through wage rises, higher interest rates and wider affordability pressures continue to be challenges for buyers."

Kinnaird added that with interest rates expected to remain high for some time, house prices are likely to decline further before returning to growth from 2025.

The long-term trend shows that average house prices are still around £40,000 above pre-pandemic levels.

Small houses selling faster

With value for money at the top of buyers' lists, small houses are currently selling more quickly than flats or larger houses, according to separate research by property website Zoopla.

Two bedroom terraces are the fastest selling property type in most regions of the UK -- and are the only property type currently taking less than a month to sell on average (between listing for sale and selling subject to contract).

The average time to sell has risen across the board since last year. Three bedroom semi-detached houses are now taking 32 days to find a buyer -- a full two weeks longer than last year -- while one bedroom flats sell in 37 days on average, an increase of nine days on last year.

Detached homes with 4+ bedrooms are the slowest property type to sell, taking 47 days on average.

Steady recovery in demand

In the longer term, estate agent Savills expects to see a steady recovery in demand as affordability pressures gradually ease.

Its new report forecasts that the market will "bottom out" around the middle of next year.

Overall, the average house price is projected to fall by 3.0% in 2024 followed by an increase of 3.5% in 2025 and further increases in subsequent years. With the projected price movements over the next five years, house prices would be around £45,000 higher on average by 2028.

"Interest rates are expected to have peaked and the worst of the house price falls look to be behind us, but the first cut to rates still looks to be some way off. This means continued affordability pressures are likely to result in further modest house price falls over the first half of 2024, resulting in a peak to trough house price adjustment in the order of -10%," explained Lucian Cook, head of residential research at Savills.

"The expectation of a gradual reduction in rates suggests a progressive restoration of buying power and steady recovery in demand," Cook added.

"We expect growth to accelerate as affordability pressures ease, with the strongest growth forecast for 2027 when rates reach their long-term neutral level. From there we expect growth to settle at a rate broadly in line with income growth."

Posted by Fidelius on November 13th 2023

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