House prices in the UK have grown at only half the pace of top-paying savings accounts over the past year, according to new analysis – casting doubt on the short-term returns of residential property investment and highlighting growing affordability pressures.
The latest Halifax House Price Index, released this week, shows that average property prices were essentially flat in June, following a -0.3% dip in May. The average UK home now stands at £296,665 – just +2.5% higher than a year ago.
In contrast, many easy-access savings accounts have returned 5% or more in the same period, meaning savers have effectively outpaced homeowners in terms of returns.
Amanda Bryden, head of mortgages at Halifax, painted a picture of resilience in the housing market: “Mortgage approvals and property transactions have both picked up, with more buyers returning to the market. Wages are still rising, which is easing some of the pressure on affordability, and interest rates have stabilised in recent months.”
But others see the market through a more cautious lens. Sarah Coles, head of personal finance at Hargreaves Lansdown, says the comparison with savings performance is a wake-up call: “It’s a reminder that overstretching yourself for a home you can ill-afford isn’t always the safe investment it’s made out to be.”
Coles warned that while activity may pick up slightly later in the summer, a “spectacular late summer bloom” is unlikely, particularly as speculation over future tax rises begins to weigh on household confidence.
The sluggish growth in house prices comes despite efforts by lenders to offer more flexible mortgage deals. Yet high property values, especially in the south, continue to stretch affordability to its limits.
“While mortgage rates have eased slightly,” Coles said, “they remain much higher than we’ve grown used to over recent years. That’s one reason why sales are stronger in areas with more affordable homes.”
Buyers in more expensive regions are also becoming increasingly cautious, wary of overcommitting amid a stagnant market. “If you’re stretching your finances to buy a home at a time when price growth is this sluggish, there’s a risk you could end up being forced to sell before values have risen enough to cover your costs,” Coles added.
Despite the national slowdown, several regions are still seeing relatively robust growth.
• Northern Ireland once again leads the UK, with house prices up +9.6% year-on-year. The average home there now costs £212,189.
• Scotland recorded +4.9% annual growth, with prices now averaging £214,891.
• Wales saw a +3.9% increase, reaching £229,622.
• In England, the North West led the pack with +4.4% growth to £241,938.
At the other end of the spectrum, price growth remains sluggish in traditionally more expensive areas. The South West and London saw minimal gains, at +0.5% and +0.6% respectively. London’s average home still commands a steep £540,048 – nearly double the UK average.
With many buyers hesitant to commit in the face of economic uncertainty and high borrowing costs, the outlook for the housing market remains finely balanced. While stabilising interest rates and rising wages offer some grounds for optimism, affordability pressures and concerns over future tax policy could keep house price growth in check.
In the meantime, as this new analysis shows, putting money in a savings account may – at least for now – offer a better return than bricks and mortar.
