House prices crash avoided?

House prices have been falling around the world. Australia, New Zealand, Sweden, Denmark and a host of other countries have suffered major falls with more to come. 

Boosted by low interest rates, and consequently cheap mortgages that encouraged generous offers the cost of homes hit record levels last year.

But interest rates are up around the world. After years of historic low interest rates as low as 0.1%, the Bank of England base rate is now 4.25% and could be heading up higher still.

House prices saw rapid growth throughout the pandemic thanks to stamp duty cuts, low interest rates and the “race for space.” Things changed when interest rates began to climb in the second half of 2022.

It’s logical to think that this will mean an end to house price inflation because people will simply not be able to afford higher prices. Doomsayers have predicted falls of anything up to 30% in the housing market in the UK, pointing out impact of increasing interest rates seems to be having the same effect everywhere.

Everywhere, that is, apart from the UK.

Prices wobbled over here, too, falling in November and December after the September 2022 mini-Budget mortgage rates soared past 6.5% and markets went into panic. But the panic maybe over, and it looks like prices could even be back on the up.

UK house prices went up 1.2% in February and another 0.8 % in March, according to latest data from Halifax. New figures from Rightmove show that asking prices for new properties rose by another 0.2 percent in April. Today’s first-time buyers now pay £224,963 on average, which is the highest price ever.

But are they really going up, and if so why?

The market is segmented

The regional variations in property prices make it hard to see what is really going on. In contrast to the moderate price hikes across the UK in general reported by the Halifax, regions within the UK saw a decline in house prices in the first three months of 2023, according to the Nationwide Building Society:

  • Northern Ireland fell by 1.3%
  • Wales dropped by 1.7%
  • England fell by 1.9%, with East Anglia being the region with the biggest decline
  • Scotland suffered the biggest fall with a drop of 2.3%

At the same time, there are property hotspots. With working from home likely to be a permanent part of many people’s lives, demand for properties outside cities has jumped. Lockdowns highlighted the value of greenery and space, triggering a surge of interest in properties in rural and coastal areas.

The average price of a UK home has nearly trebled since the turn of the century. Prices have increased by more than 60% over the last ten years, according to Nationwide building society.

The different prices reflect very different markets. Houses prices in central London are already high, and may fall a little. Elsewhere in the country, there could still be inflationary pressures where prices are currently low.

But prices edging up or edging down, there certainly seems to be little evidence of a house price crash. 

So what happens now?

The UK property market still refuses to collapse, despite all the political and economic woes that have afflicted the country in recent months.

First-time buyers would welcome a dip in prices as they struggle to get a toe on the ladder. But as prices drops are not forthcoming, they seem to be prepared to sacrifice even more to get a place of their own with ever-longer mortgage terms and ever higher deposits.

Everybody else may have a vested interest in house prices staying stable. Nobody wants to spend several hundred thousand pounds on a home only to see its value crash, plunging them into negative equity.

But reluctance to sell at a loss is not the main factor keeping prices buoyant. Perhaps the biggest reason house prices haven’t crashed is that we aren’t building homes fast enough to keep up with the country’s soaring population.

What should you do?

High inflation and interest rates may be set to dampen the housing market, but it looks as though your home might still be a good investment.

 With those high rates, getting the best mortgage deal is more important than ever. The simple way to get it? Simply call us at Continuum for independent advice.

The information contained in this article is based on the opinion of Continuum and our understanding of the current UK Housing Market you should seek Independent mortgage advice if you are considering purchasing or selling a property before embarking on any course of action

Your home may be repossessed if you do not keep up repayments on your mortgage.

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