How much would you pay to live here? Now add another 20 per cent…

Independent

2 days ago

Just a month after a surprising fall in house prices, they have bounced back and then some – taking both the City and your correspondent by surprise.
New figures from Nationwide show that prices increased by 0.5 per cent in May when compared to April. Prices in that month had fallen 0.6 per cent compared to March. The annual rate, when compared to May 2024, also edged higher (3.6 per cent) when compared to April's annualised 3.5 per cent rise.
April's slowdown was always expected, coming as it did after a flurry of activity in March as purchasers rushed to get purchases through ahead of Rachel Reeves' stamp duty increases. But the rapidity of the bounce back comes as a surprise.
True, this could be a blip, and Nationwide's is just one of a number of indices. And we're not in a boom, nor anything like it. However, despite how stretched affordability has become, parts of the market are looking very frothy. Pity the would-be buyer.
In many parts of the country, becoming an owner occupier is a distant dream unless you have access to the favourable rates available from the Bank of Mum & Dad LLC, one of the nation's biggest, and most selective, lenders.
London and the South East have long been positively ruinous for a long time, with prices there in the 'completely crazy' category. There isn't much room for growth, even with lenders offering longer term loans and fancy multiples of prospective borrowers' salaries to encourage first-time buyers.
But that is by no means true in other parts of the country, where temperature gauge is firmly in the red. The most recent regional data, available from the Office For National Statistics, dates back to March. It shows that the Shetland Islands – one of the UK's remotest regions – recorded annualised growth of 18 per cent, followed by North East Derbyshire at 17 per cent and Blackburn & Darwen, also at 17 per cent.
The first two of those are, obviously, highly rural, and rural areas have proven to be quite spicy in recent years. The trend of people moving from urban was established during the pandemic and found mixed results. Regretters were not uncommon. The bucolic fantasies promoted by shows like Escape to the Country are far from reality. City-dwellers typically have to confront unexpected challenges, such as services they take for granted not being there.
However, the overall trend isn't reversing. Nationwide found growth of 23 per cent in rural areas between December 2019 and December 2024, compared with just 18 per cent in areas that are largely urban.
There are, nonetheless, plenty of urban hotspots to be found in the ONS data, including Newcastle upon Tyne (14 per cent), Liverpool (14 per cent), Middlesbrough (14 per cent) and Hartlepool (13 per cent). This underlines an unpleasant fact for would-be buyers: it's tough going wherever you happen to be looking.
What's the house-hunter to do? I'd gently suggest listening to Nick Mendes, from broker John Charcol who says: 'For consumers, this is a market that rewards preparation. Mortgage rates are still competitive, but deals are moving fast and lenders are selective.'
He adds: 'Getting a solid deposit together, tightening up credit and working with a broker who knows the full market makes a real difference.'
So delete the Klarna app, burn your credit cards, and save until it hurts.
Of course, Mendes works for a broker so he would naturally advocate for their services. However, for many, sitting down with a professional is a sound idea. They often have access to deals that aren't available direct and they can be particularly helpful to people who don't fit into the comfortable boxes that big lenders, and big insurers, prefer. Those people aren't uncommon.
Mendes is particularly on the money when he says this: 'Some lenders have relaxed affordability rules, particularly on longer-term fixes, and that might increase how much you're told you can borrow. But just because you can stretch your budget doesn't mean you should.'
But is that message getting through? As tough as it is for buyers, it remains a much better option than renting for those who have the resources. Prices in the private rented sector are no less inflated. They're often worse. This helps to explain he willingness of buyers to stretch themselves. It isn't wise. But when the alternatives are so miserable, it is understandable.
Most forecasters think prices will tread water over the next few months, despite the latest uptick. The economic uncertainty stalking to the world, thanks in no small part to Donald Trump's trade war, should help to keep a lid on things.
But with wage settlements outpacing inflation, they are expected to start to accelerate later in the year, even with the cold water recently poured over hopes for more interest rate cuts by unexpectedly high inflation.
Now is the time to take the plunge. If you can.