Latest House Price Index Shows House Prices Hold Firm, But Challenges Ahead as Fixed Rate Mortgages Expire, Interest Rates Rise and Confidence Reduces

Lending societies, potential buyers and sellers are all coming to terms with the realities of the new mortgage rate environment as the Bank of England further increases the base rate, which Ulster University’s latest research highlights as having a notable impact on the market, curtailing activity and reducing purchaser confidence.

The latest findings from the Quarterly House Price Index indicate that despite ongoing economic and financial market uncertainty, new listings and buyer enquiries have continued, but show signs of decline over the second quarter (Q2). With further interest rate hikes forecasted for 2023, mortgage borrowing and affordability emerge as concerns for purchasers.

Ulster University’s House Price Index references The Office of National Statistics' predictions that 1.4 million fixed-rate mortgage deals are set to expire in 2023. The majority of those remortgaging are currently on deals under 2%, but with rates elevating to approximately 6%, mortgage costs are expected to surge, undoubtedly posing a significant test for the housing market and house prices in the near future.

The average house price is £204,331 in Q2 and this reflects an increase of 0.7% between Q1 and Q2 in 2023 but the market proved to be experiencing weakened buyer demand leading to indications of sales prices falling below asking prices. Potential buyers and sellers appear to be adopting a cautious approach, playing a ‘holding game’ in response to the dynamic and ever-changing borrowing landscape.

Higher interest rates have invariably affected confidence, particularly with regard to properties in the higher price bracket as even marginal changes in borrowing costs can significantly alter affordability. The next quarter is likely to be significant as the impact of the recent rise in the BOE base rate impacts market conditions and purchaser affordability.

Introducing the findings, lead researcher Dr Michael McCord, Reader in real estate valuation at Ulster University, said:  

“Our latest report shows a housing market which continues to cool amidst the dynamic and turbulent interest rate hikes and mortgage repricing environment. House prices have however remained resilient in quarter two of the year showing a nominal increase from quarter one of 2023 - remaining at the level seen at the beginning of the year. Despite this resilience, the market faces ongoing challenges with a potential recession on the cards, and with increasing signs of wanning buyer demand and increased mortgage borrowing costs, it looks increasingly likely that the market will continue to slow down into the second half of 2023 as the volatile financial setting continues to filter into the housing market. The effect this will have on house prices remains to be seen, but any price correction is likely to be moderate with demand-supply imbalance continuing to be a factor in prices remaining stagnant.”

Other key report findings for Q2 2023 include:

• The terrace/townhouse sector exhibited the highest quarterly price change with an increase of 2.9% compared to Q1 2023, the average price of an apartment is now £135,682;
• The semi-detached sector has seen a nominal decrease of -0.9% relative to Q1 2023, with the average price standing at £189,039;
• The detached sector shows a quarterly price increase of 1.6%, with an average price standing at £290,340
• The apartment sector has remained at the same pricing point noted in Q1 2023, recording an average price of £158,821.

Ursula McAnulty, Head of Research at NI Housing Executive, which commissions the research, said:  

“As affordability pressures continue to take hold, purchaser confidence is showing signs of waning, with potential buyers and sellers playing a “waiting game” in light of the current economic uncertainty.  Whilst in Q2 2023 there was an annual weighted price increase of 2.9%, the increase in borrowing costs and decreased purchaser confidence signal a slowing of momentum in the housing market in Northern Ireland.” 

Michael Boyd, Chief Executive and Finance Director at Progressive, said:   

“Despite ongoing pressures from still-high inflation and rising interest rates, the Northern Ireland housing market has managed to put in a robust performance in the second quarter of 2023. It appears a lack of supply continues to be the main factor underpinning the market, along with – perhaps surprisingly – a relatively strong demand picture with a healthy volume of buyers still active. An easing inflationary outlook and signs the Bank of England appears to be tempering its latest run of interest rate hikes bodes well for the current quarter. Affordability considerations will remain as fixed rate mortgage deals come to an end but a more settled interest rate picture is good news for borrowers.”

The Quarterly House Price Index is produced by Ulster University in partnership with the Northern Ireland Housing Executive and Progressive Building Society. It analyses the performance of the Northern Ireland housing market during the second quarter of 2023 (April - June).   

To read the full report findings, visit: Northern Ireland Quarterly House Price Index Q2 2023 (ulster.ac.uk)