Have We Hit Peak Property Market Fever?

The UK housing market has been enjoying an unprecedented boom during the last two years, fuelled by the pent-up demand from the lockdowns, and the stamp duty holiday. House prices have soared by a year-on-year average of 9.4% in England, according to the Office for National Statistics (ONS).

This translates to the average home in England now commanding £292,000, and the overall average UK home is now £24,000 more expensive than it was this time last year. However, history tells us that whenever the market experiences a boom, it is generally followed by a bust. So, what’s in store for the future of the UK housing market?

The Financial Times reports that a slowdown is indeed in the offing. There are several reasons for this. The first is the rising interest rates, which the Bank of England has adjusted from 0.75% to 1% recently, in order to try and combat soaring inflation rates. Inflation is predicted to rise by as much as 10.2% by the last quarter of 2022.

At the same time, the cost-of-living crisis is hitting both renters and homeowners, making moving house a less attractive prospect. Interest rates are predicted to rise still further, by as much as 1.5%, according to the Standard. This means that borrowing, including mortgages, will be more expensive.

Neal Hudson, director at housing market research firm Residential Analysts, told the publication: “The risks to the housing market are rising. The cost of living crisis is squeezing household finances, especially for those towards the lower end of the income distribution, typically renters.”

He added: “Meanwhile, interest rates are rising, which will eventually feed through to higher mortgage rates and higher housing costs for mortgaged homeowners.”

As householders find that their monthly outgoings, in terms of grocery bills, fuel bills, and mortgage or rental payments rise, with no corresponding rise in their income, a less buoyant housing market seems inevitable.

However, there are some mitigating factors which may prevent a significant slump in the market. Firstly, there is still an imbalance between the supply of houses in the UK and the demand, which will take some time to redress.

Many people are still considering a move despite extra financial pressures, especially if they now work from home more often and are seeking out extra space. There is still more demand for family homes in suburban or rural locations than there is for flats, for example.

Those already on the property ladder who are on fixed two- or five-year mortgage deals will be protected from the immediate effects of the interest rate rises. However, those on standard variable rates (SVR) will already be feeling the pinch in their monthly outgoings, with the latest 0.25% rise adding an extra £25 a month to a £200,000 mortgage.

First time buyers will also be facing steeper mortgages, as well as an increasingly challenging environment in which to save for a deposit. Anyone looking for a new mortgage, or considering re-mortgaging, is strongly advised to talk to an experienced broker, such as Tulip Mortgage Services, before making any firm decisions.

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