Following years of unbridled growth, average UK house prices are finally falling but this is doing little to offset soaring interest rates being faced by homeowners, according to the January 2023 Money Statistics, produced by The Money Charity.
The UK housing market has been on a continuous, steep upward curve for a number of years, but as 2022 came to an end, average prices were unusually seen to be falling with further drops forecast. In the three months to November 2022, Halifax reported the average house price as £281,272, a fall of 2.5%, while Nationwide estimated that house prices fell by 0.1% in December 2022, leaving them 2.8% higher than 12 months before.
Prices may be starting to fall, however, this is doing little to offset soaring interest rates paid by homeowners. In fact, the falls are in part being caused by the rising rates, meaning the prospect of house buying, particularly a first-time buyer purchase, may not be an attractive one. At the end of November 2022, the average mortgage interest rate was 2.39%, meaning households would pay an average of £3,540 interest in a year. For new loans, the average rate was 3.36%. Based on this, first-time buyers would pay an average of £6,348 in yearly interest repayments.
The sharp rise in interest repayments largely came about following the mini-budget announcement in October 2022. Although many people are currently shielded from this by existing fixed-rate mortgages, more than 1.4 million UK households are facing increases when these run out during 2023. As a result, around 4 in 10 (45%) UK adults with mortgages, surveyed in December 2022, reported being very or somewhat worried about the upcoming changes.
Many people may therefore be considering that renting is a better option than paying a mortgage, while for many it remains the only possibility. In the year to March 2021, UK renters spent an average total of £106.50 per week on rent once housing benefit, rebates and other allowances received were accounted for, equivalent to 24% of their median weekly expenditure. Meanwhile mortgage holders spent a total of £140.80 per week on repayments, equal to 16% of their media weekly expenditure. While these most recently available figures aren’t fully reflective of the current situation, falling house prices indicate that the trend above could be reversed. As more expensive mortgage repayments cause demand to fall and house prices to drop, renting may become a cheaper, more attractive option. Equally, if existing costs rise for landlords and/or it becomes more expensive to be a landlord, rental rates may rise in turn.
Michelle Highman, Chief Executive of The Money Charity says:
“In our Financial Wellbeing sessions for adults, we help people across the UK to engage with how they can see their money as a force for good in their lives, one that will help them achieve their goals in life. One of the most common goals for many people is to own their home, but sadly we often find, for various reasons, it can be a daunting one.
“These recent figures show concerning trends, both for those who are currently working towards homeownership, while also moving this goal further and further away from too many, leading to greater inequality and exclusion. Decision makers need to quickly, but prudently, find ways to address these twin challenges, supporting those already in the market while enabling access for those who are currently unable to pursue this goal.”
Other Striking Numbers from the January Money Statistics:
- At least 10.83 million workers had joined a pension scheme under auto-enrolment by the end of December 2022. (P16.)
- The UK economy grew by 0.1% in November 2022 and is now estimated to be the same as its pre-pandemic level. (P19.)
- 1,361,000 (11.0%) people aged 65 and over were in work in September to November 2022 (P20.)
Get the full picture and many more fascinating facts about money in the UK in our monthly Money Statistics.
Notes to Editors
- For over 25 years, The Money Charity has been the UK’s Financial Capability charity. We proactively provide education, information, advice and guidance to people of all ages, to reach our vision of seeing everyone achieving Financial Wellbeing by managing their money well. We empower people across the UK to develop the skills, knowledge, attitudes and behaviours to make the most of their money throughout their lives. Find out more at https://themoneycharity.org.uk/
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