When will house price increases finally cool off?

The latest figures from Halifax show prices rises slowing a little, but there is a long way to go, writes Ben Chapman

House prices are still too high for many people’s budgets (PA Archive)

Rejoice! UK house prices have finally started to cool off, according to the latest figures from Halifax.

At first glance that might appear to be good news for aspiring homeowners grasping for that elusive first rung of the property ladder.

But they should probably hold off on celebrating just yet. Halifax found that prices rose 10.5 per cent in the year to May, down slightly from the month before, but still ridiculous. The average house price hit a record high of £289,099 in May, and across the UK the typical property value increased by £2,857 month-on-month.

Northern Ireland saw the strongest annual growth at 15.2 per cent. In the southwest of England it was 14.5 per cent, in Wales, 13.7 per cent. Only Yorkshire and the Humber, Scotland and London recorded annual house price inflation below 10 per cent.

The property market remains out of control. The latest figures mean that second (and potentially even third and fourth) homeowners have received another unearned, inflation-busting return on their investment – most likely an investment made largely with borrowed money.

That is a bad state of affairs at any time. In the present context it is particularly galling. This year the average person working for a living will see the spending power of their earnings shrink at a pace not seen for decades. The painful squeeze on living standards is set to continue next year, with consumer prices still forecast to be rising at a breakneck 7.4 per cent a year by the end of 2023.

Martin Beck, chief economic adviser to the EY Item Club, points out one reason why this could be good news for property speculators: Cost-of-living pressures will disproportionately hurt lower-income families, many of whom rent rather than own their homes.

That will further shield property prices from steep price falls.

So when will the madness of rampant property price inflation be brought to an end?

Housing market crashes have been predicted for quite some time and there are expert voices now suggesting that we are in for one soon. However, if there is anything approaching a consensus, it is that we are heading towards a gentle slowdown or perhaps at worst a “correction”.

The number of mortgage approvals fell in April and may well proved to have dipped again in May, when the impact of the latest interest rate rise will have been felt.

Rates are almost certain to rise further, up towards something approaching normality by early next year. That should, hopefully, take some of the heat out of prices.