House prices rose by 0.9% in May, taking annual house price growth to 11.2%. Month on month price growth has been softening since the start of year, down 0.9% this month from 1.7% in February. 

The deficit of homes on the market will continue to support price growth in the short term, before affordability pressures finally press on the brakes over the medium term. Our latest forecasts, released 31st May, predict annual house price growth to finish 2022 at around 7.5%. We expect more subdued growth of 5.1% over the following four years, with 12.9% growth nationally over the entire five year period.

The sales market remains busy for now, with the number of sales agreed at 18% above pre-pandemic levels in April, according to TwentyCi. Mortgage approvals fell in April, however, back to levels more in line with pre-Covid levels for the month. Completions remained 13% up on the pre-Covid average in April, though the return to pre-Covid mortgage approvals is likely to filter into normalising levels of completions as the year progresses. 

First time buyers (FTBs) and Buy to Let landlords are transacting more readily than home-movers. The number of loans granted to FTBs in March was 16% above the 2017-19 average for the month, according to UK Finance. They have maintained their majority share of the mortgaged market since October, overtaking home-movers following the end of the stamp duty holiday. Investment in new buy to let properties remains strong, with the number of loans granted in March 50% higher than pre-pandemic levels. FTBs and landlords benefit from a chain-free position and could be bidding on flats and smaller homes, which have seen less demand during the ‘race for space’.

This buyer preference for larger homes could be slowly losing intensity, as demand for houses outside the capital softens. Buyer interest for London flats is making a comeback, with demand 16% up in May compared to the same period in 2021, according to Zoopla. The time taken to sell this property type has reduced slightly, while houses saw an increase in time spent on the market.

House price growth was strongest in Blaenau Gwent and Merthyr Tydfil in Wales, where prices grew on average 23.0% and 22.9% in the year to February. Small house price falls occurred in parts of London, with Southwark and Lambeth down 1.6% and 1.4% respectively.

Rents grew 11.4% in the 12 months to April across the UK, according to Zoopla. This was another record for annual rental growth since at least 2011, but month on month growth continued to slow. Rental growth decelerated most rapidly in the East Midlands, as supply constraints here are less prominent than in London and the South West, according to Zoopla. 

Lack of choice in the rental market is causing more tenants to stay put for longer, however, amplifying the stock issue. Tenancy lengths continue to rise, as tenants roll-over their contracts to avoid the likelihood of paying a higher rent for a new tenancy. The majority of landlords reported they would keep the rent the same for existing tenants, but would be more likely to increase the rent for new tenancies. The English Private Landlord Survey was carried out at the end of 2021, when rental growth was up 8.3% year-on-year.