Rents in the private sector of England and Wales increased by 5.1 per cent in the year to June — the largest increase since official records began seven years ago.

The announcement by the Office for National Statistics showed that in London specifically, rents rose 5.3 per cent – the highest since September 2012. 

On the sales side, house prices recorded by the Land Registry increased just 1.9 per cent in the year to May to an average of £286,000, slower than the 3.2 per cent gain recorded in April.

“UK annual house price inflation slowed again in May for the seventh consecutive month” says Aimee North, ONS head of housing market indices. House prices are now £7,000 below the recent peak in September 2022. 

Despite the turbulence of the past few years, the housing market has remained resilient but now analysts fear a squeeze on affordability. 

“Given these figures only account for the 12 months to May 2023, they do not yet reflect the impact of the rapid spike in mortgage rates seen in recent weeks. Average two-year fixed rate mortgages are now well above 6.0 per cent, and people’s ability to afford their growing mortgage payments will be called into question, and prospective first time buyers may be put off by the prospect of committing to such high monthly rates” explains Karen Noye, mortgage expert at Quilter.

“In the coming months, we could see those people who have overstretched themselves looking to sell their properties at a time when demand is heavily reduced. However, the recent Mortgage Charter will give homeowners a bit of breathing space and should limit the number of distressed homeowners being forced to sell their properties, so we are unlikely to see a flood of such sales.

“The past few weeks have been a particularly challenging time for the mortgage market, and we are thankfully now starting to see some semblance of normality resume as lenders stop the rapid readjustment of their rates. This week’s lower than expected inflation figure will offer some relief to the Bank of England and interest rates are now forecast to rise less sharply as a result, but given inflation is still well above the 2.0 per cent target it is unlikely that the BoE can take its foot completely off the pedal. 

“If the BoE opts to push rates higher once again, this could cause significant damage to property prices as affordability is further squeezed.”