What do rising interest rates mean for UK house prices? Business News

In interest rates are on the rise and further increases are expected in the coming months as the Bank of England seeks to contain inflation – which is expected to exceed 10% this year.

This figure – the highest since 1982 – is rightly worrying, but in the housing market, price inflation of 10% may have persisted for long periods.

Ultra-low interest rates have made mortgages cheaper, inflating a housing bubble that has made home ownership a distant dream for many renters in parts of the UK.

So, will higher interest rates help cool the country’s out-of-control housing market?

What is the latest UK house price data?

Figures released by Halifax on Friday, for a period before the Bank of England’s rate hike, show there were not many signs of a slowdown in April.

Despite fears over the cost of living and steep rises in energy bills, house prices are up 1.1% (about £3,000) from March.

The average house price hit £286,079 after the 10th consecutive monthly rise in prices, marking the longest run of increases in six years.

Halifax said a “race for space”, which began during the pandemic, is expected to continue as people move from city apartments to bigger homes in more rural areas.

April’s price increase was slightly slower than March’s 1.4%, but the annual increase was still 10.8%, well above average wage increases.

Some analysts had expected price increases to subside after a stamp duty holiday ended last year. This does not happen.

Other signs indicate that prices may not fall in the near future. The number of sales jumped 28% in April compared to January.

Estate agent Chestertons said it had seen a 31% increase in the number of people signing up for viewings at its London branches.

Chief executive Guy Gittins said there is now a “strong seller’s market” and the number of sellers willing to cut their asking prices has fallen 38% over the past year.

“The sheer volume of agreed sales in April created a difficult workload for lawyers and banks, which impacted the time it takes to finalize a sale,” he said.

Rising interest rates will affect some buyers’ ability to buy a home, but the effect may be limited.

What is driving rising house prices in the UK?

Prices were inflated by the supply of cheap credit. Although rates are increasing, they are still very low by historical standards. Buyers with a large deposit can still get a two-year fixed contract at an initial rate of around 2%.

Housing supply also remains a problem. There aren’t enough properties people want in the areas they want.

There is now a clear dividing line in the market between houses, which are in high demand, and apartments, which are proving harder to sell in many areas.

The UK’s planning system has been accused of slowing down the process of building new properties and restricting supply.

Government proposals to radically overhaul the system and replace it with a zoning model that would automatically approve developments in designated areas have proved controversial. Some reports suggest ministers will abandon the changes.

Big developers are also being criticized for hoarding large amounts of land that may not be used for building for years. In the meantime, developers are profiting from holding land as values ​​continue to rise while the supply of new homes is limited.

These factors will not be affected by rising interest rates.

What future for UK house prices?

Real estate market experts are divided on the next move in house prices, but few predict a fall this year.

The question is how fast prices will continue to rise.

Tom Bill, head of UK residential research at Knight Frank, said the recent period of price growth appeared to have peaked last month.

“We don’t expect prices to come down, but we’re likely in the last month or two of double-digit annual growth,” he said.

“The psychological impact of a rising base rate above 1%, higher mortgage rates, a squeeze in the cost of living and the gradual rebuilding of supply will all contribute to the slowdown as housing prices real estate will come back down later this year.”

Halifax expects home price growth to slow further as affordability becomes tighter.

“The house price-to-income ratio is already at an all-time high, and with interest rates rising and inflation further squeezing household budgets, it remains likely that the growth rate of house prices will slow by the end of this year,” Halifax chief executive Russell Galley said.

Capital Economics also predicts a sharp slowdown in price growth towards the end of the year.

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This notice was published: 2022-05-06 14:37:42

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