NEWS: Why are House Prices Falling in Investment Hotspots?

08-July-2024 13:59
in Mortgage
by Sam Hodgson
Why are house prices falling in investment hotspots?

House prices are beginning to fall and investment hotspots that were seeing the biggest growth before 2022 are now on a decline - we explain why.

In the past year, house prices in the UK have fallen -0.2%, bringing the average house price to £263,800.

That's £410 lower than a year ago. While this decline isn't substantial, it illustrates a lack of growth in the British property market and that it's struggling to leave the slump it experienced in 2023.

Related: The 9 Best Places to Live in the UK & Can I Get a Mortgage for 5 or 6 Times My Salary?

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Where in the UK Are House Prices Falling?

Why is Property Value Dropping in Some Regions?

Is The UK Leaving The Housing Slump?

What Do The Experts Say?

Finding an Affordable Mortgage

Where In the UK Are House Prices Falling?

The South of England is seeing the largest house price falls across regions and cities, while some other regions are still seeing growth (just at a slightly slower pace than before 2022).

Northeast, Scotland and Northern Ireland are seeing the biggest yearly increases (1.3%, 1.9% & 4.4% respectively), but this still this is only incremental compared to the 25% increase (over £63,000) observed in Cornwall between November 2020 – November 2022.

East England is seeing the largest annual property value drop at -1.7%, and the Southeast is following closely behind at -1.6%.

Growing cities like Bristol, Birmingham and Edinburgh have remained fairly static in the past year. Bristol has dropped by a minute -0.5%, and Birmingham and Edinburgh have surpassed 0.5%.

Scotland is the only region in the UK where house prices have continually risen amidst last year's housing slump.

Zoopla's infographic below shows where in the UK property value is rising and falling.

Why are house prices falling in investment hotspots?

Why Is Property Value Dropping in Some Regions?

The UK as a whole is experiencing limited purchasing activity due to a lack of affordability brought on by inflation. Increased interest rates and elevated house prices compared to the average wage means buyers have less disposable income to save up for a large deposit and are being priced out of certain areas. This, combined with high living costs, has led to less buying activity and slow market growth in 2024.

The Bank of England base rate was raised to 5.25% in August 2023 to combat inflation, the highest it had been in 16 years, putting buying a home out of reach for many across the UK.

Sellers have been reducing their asking prices due to a lack of buying activity, even in competitive markets like London and the Southeast, as well as growing cities.

Some regions saw high demand during 2020 – 2021. The uber-low bank rate of 0.1%, additional household savings from working from home and a desire to be closer to nature due to the COVID-19 pandemic caused property value to skyrocket in some areas, which is now dropping as the property market re-adjusts.

In areas like the Southeast, London and Oxford, affordability is the primary reason that property value is dropping slightly. First-time buyers and young families are being priced out of London, where the average deposit for a first-time buyer is £144,000.

See similar: Guide to the Most Expensive Streets in the UK

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Is The UK Leaving The Housing Slump?

House prices are slowly recovering month-on-month. As hints of a summer bank rate reduction loom over the nation, more first-time buyers and investors are taking the hit with interest rates and taking advantage of the dip in property prices.

But while some buyers are in a position to take the leap, it remains a buyers’ market, with a number of properties taking over a year to sell.

It’s difficult to say whether property prices will continue to heal from the economic turbulence the UK has undergone in the past four years.

House prices may be picking up, but data shows that the real value of homes (property value relative to inflation) has declined significantly since early 2021.

Some economists argue that the low interest rates the UK has been experiencing since 2009 are an anomaly and a key driver in keeping house prices high for the past 15 years.

But either way, while it's likely that a base rate reduction is on its way, it's also possible that the super-cheap borrowing we saw between 2020 - 2021 is a thing of the past.

Read blog: UK's Top 10 Rental Yield Hotspots for Landlords

What Do The Experts Say?

George Abouzolof

George Abouzolof

Senior Finance Broker CeMAP

Inflation now sits at 2%, exactly the target that the Bank of England has been trying to achieve since 2021. Many were expecting the most recent bank rate announcement to reveal a reduction, but this hasn’t been the case. 

Many individuals are holding their breath until they see a significant change to interest rates, and it’s possible that the Bank of England is waiting for inflation to drop below 2% in case inflation jumps up again with a large influx of spending following any base rate reductions.

The next inflation figures will be announced on 17th July, and if inflation drops further, I highly expect rates to reduce.

And how about our readers?

Just 13% of participants believe interest rates will rise over the next 12 months, while 87% expect either a decrease or for rates to stay the same.

This sheds some light on the fixed or tracker mortgage debate for first-time buyers and those remortgaging in the next coming months.

Interest Rates

This sheds some light on the fixed or tracker mortgage debate for first-time buyers and those remortgaging in the next coming months.

Read our full survey results »

How Can You Find an Affordable Mortgage in 2024?

Despite current optimism about declining mortgage rates, deciding on the best option can be daunting.

We can help you compare mortgage products and their costs to find the best deal for your specific situation from a wide range of lenders nationwide.

Expert mortgage advisors have their finger on the pulse of the latest mortgage market news. Whether you're a first-time buyer, looking to refinance, or investing in a BTL, we can help you understand your mortgage options so you feel confident you're making the right choice.

To see what we can do for you, give us a call at 0203 900 4322 or book a free consultation below.

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