Look to local markets to value your home

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This week, Nationwide building society reported that the average UK house price was £271,619 in June, as it dropped by an unexpected 0.8 per cent compared with May — the biggest monthly fall in two years.

But how useful is this, given that, in the words of my late friend Charles Fairhurst, “all residential is local”? What he meant was that the price or rent of a home — and whether it is bought, let, or even built — is determined as much by local factors as by national ones, such as mortgage rates or taxation.

Local factors can affect how much it is worth and how willing someone is to live in it. This includes the specifics of the property, such as its location but can also extend to factors that are less easy to quantify such as how the potential buyer feels when they walk in the door — I wanted to buy my home within a minute of entering. This variation leads to a broad distribution of prices and price growth that a single national house price measure can’t easily reflect. The prospects for the UK’s housing market in aggregate appear poor, with stagnation of prices and activity looking the most likely outcome over the next few years. But the performance of local housing markets could be quite different.

Local housing markets tend to follow what estate agents call the housing market cycle. In the early stages of the cycle, such as following the early 1990s or late 2000s downturns, housing market activity and prices tend to recover first in central London before the recovery spreads out north and south-west across the capital. It then moves into the home counties, and further afield into the more expensive parts of southern England. Eventually, if the cycle continues for long enough, it spreads into the lowest-priced markets. For example, when I start seeing Kilmarnock, a place I had family links to, topping the charts for house price growth I know we’re probably in the latter stages of the cycle.

There have been signs that we are in the latter part of the cycle for a while now. East Ayrshire council area, home of Kilmarnock, started hitting the upper end of the local authority price growth charts back in 2019 and, as I explored in a previous article, the central London housing market has been stagnating since 2014.

There was a brief interlude following the pandemic, due to the race for space, with a burst of activity and house price growth across the country — including in the south of England. But since mortgage rates started rising in 2022, there has been further divergence between the south of England and the rest of the UK — reinforcing the view that we’re in the later stages of the housing market cycle.

Despite rising rates being a national phenomenon, it has had different impacts on local markets. While the immediate impact of rising rates in 2022 was similar across the country, with prices falling by about 5 per cent, the trajectory of local market house prices has been more varied since then. Prices in London and the south of England may have stagnated but markets across the rest of the UK quickly recovered — with nominal prices now above their 2022 peak in many places.

The reason for this variation is that mortgage borrowers in more expensive parts of the market, such as the south of England, have tended to take out larger loans relative to their incomes than in other parts of the country. Unfortunately, rising mortgage rates make these larger loans unaffordable and so fewer people can afford to buy. Meanwhile, those that can still buy are stuck with higher mortgage repayments. For example, UK Finance data for the first quarter of 2025 shows the typical first-time buyer in south- east England had mortgage repayments equal to 23.8 per cent of their gross income compared with 19.4 per cent in both their northern England and Northern Ireland regions. That’s higher than a couple of years ago but shows there’s still capacity to borrow in more affordable markets, despite the current mortgage rate environment. As a result, markets with lower price to earnings ratios have typically seen prices rise over the past couple of years, while more expensive markets have seen prices fall.

Looking ahead, it appears this local market variation is going to continue. A growing challenge for more expensive markets is the rising number of homes listed for sale. Zoopla analysis shows an inverse relationship between changes in house prices and the number of homes listed for sale over the past year. The biggest increases in the number of homes for sale have been recorded in the south of England, where price growth has been more subdued, while the rest of the UK has seen more limited growth in homes available to buy and, in combination with better affordability, higher price growth.

There appears to be a mismatch in more expensive markets between the price that sellers want and what buyers can afford. Many potential sellers have price expectations that were set in the post-pandemic market when buyer demand was supported by mortgage rates below 2 per cent.

Unfortunately, most buyers are now constrained by mortgage rates at 4 per cent or above. Sales are still happening where seller’s price expectations are realistic, but there’s a growing number of homes where that is not the case. For example, Zoopla reports that, while the average time to sell is 45 days, 22 per cent of listed homes have been on the market for more than six months.

Rather than marking the end of the previous housing market cycle, the rise in mortgage rates has reinforced the patterns usually seen in its latter stages. Looking ahead, it is not yet clear what could trigger an end to this stalemate beyond a continued slow stagnation with affordability improving due to rising incomes and a slight easing in mortgage rates. 

So where does this leave the Nationwide UK house price index and other national indicators? They’re still useful as a measure for the general health and direction of the housing market, but if you’re looking to sell or build a home, it is important to pay attention to what is happening in your local market. If you don’t, then you might find your home added to the growing list of those that are struggling to sell.

Neal Hudson is a housing market analyst and founder of the consultancy BuiltPlace