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The average house price hits a new record of £289,099 but the market is cooling as the cost of living picks up

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Prospective buyers would need £10,000 more than last year to buy a flat and £50,000 more for a family home

The average cost of a home in the UK is now £289,099, according to the Halifax House Price Index, after prices rose 1 per cent in May – the 11th consecutive month of increases.

House prices in the UK have hit a new record high but the market is starting to cool as the cost of living picks up, new data shows.

Russell Galley, chief executive of Halifax, said the imbalance between supply and demand remains “the main reason for the continued rise in house prices”.

He added: “For homebuyers, the magnitude of the impact of home price inflation continues to depend on the type of home they are looking to buy.

“Compared to May last year, it would take around £10,000 more to buy a flat, but an additional £50,000 to buy a detached house. This is clearly creating a knock-on effect for those contemplating their first home move as the rungs on the apartment ladder have only widened.”

There are fears that some prospective homebuyers are “getting over their heads” to climb the real estate ladder.

Myron Jobson, senior personal finance analyst at Interactive Investor, said rising mortgage rates have “marginated a lot of buyers”, with the Bank of England raising interest rates four times in six months and set to go further.

“Attempts by prospective homebuyers to build up a generous cash pot to purchase a property are increasingly being thwarted by the cost-of-living crisis, with inflation rising to 9 percent in April and expected to hit double digits before year-end,” he said.

“The concern is high house prices and affordability pressures, which could cause buyers to get over their heads just to get up the real estate ladder.”

The surge in May means house prices have risen 74 percent over the past decade, while the annual pace of growth remains in double digits at 10.5 percent.

Halifax said that was the slowest rate of growth since the beginning of the year, but that should offer little comfort to those trying to climb the housing ladder as the rising cost of living makes it harder to save for deposits.

However, Mr Galley added that there was “perhaps a green shot for potential buyers” – specifically that we “may have outperformed the top seller market” given the overall decline in buying demand compared to last year.

But Mr Jobson said that although there was lower demand at the moment, it still far exceeded inventory levels, meaning that “it could be years before the supply of houses returns to normal after housing construction has stalled at its peak is pandemic”.

Other experts believe this signals the beginning of marketing to cool off.

Alice Haine, Personal Finance Analyst at Bestinvest, said: “The latest data adds to the mounting evidence that house price growth is being impacted by the uncertainty facing the broader economy.

“With rising home prices, lower disposable incomes, and fewer people with the right debt-to-income ratio to qualify for a mortgage, some first-time homebuyers may delay their entry into the real estate market while existing homeowners may hold on to their current home focuses instead to a redesign or expansion.

“This could finally put an end to the hunt for more space caused by the pandemic, especially since many commuters are now trudging into the office again in the midst of the new hybrid working world.”

Steve Griffiths, Sales Director at The Mortgage Lender added: “Spiral inflation, rising cost of living and falling consumer confidence are setting the stage for a market slowdown.”

He stressed that “affordability is stalling buyer demand and forcing property sellers to slash asking prices by at least 5 percent, with some areas cutting prices by nearly 20 percent.

“With the rising cost of living showing no signs of abating, it is important that lenders make clear and considered judgments based on individual circumstances.

“For those looking to step foot on the housing ladder or a mortgage, it’s important that they shop around and look beyond traditional lenders who may have alternative options that might better support their real estate ambitions.”

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