What next for the housing market?

The housing market continues to defy all predictions, and almost all logic.

House price growth has hit an 18-year high, with property values rising by as much as £5,000 in a month.

Wales recorded the strongest pace of house price growth at 15.3%. Average house price growth in England was 11.6pc. The South West remained the strongest performing region, with growth of 14.4%.

According to mortgage lender Nationwide, the average price of homes in March was £265,312, a jump of £33,178 compared to this time last year. In a single month, prices increased by £5,082, and house prices have gone up by more than 20% in the two years since the Covid crisis began.

The pace of growth is higher now even than during the panic buying in June last year, when buyers were desperate to take advantage of the stamp duty holiday.

But prices cannot continue to rise at this rate. In fact, there could be some signs that things are about to change.

At Continuum we are looking at why some observers believe the market has peaked.

Consumer confidence is ebbing away

Moving up the housing market depends on people being confident that they can afford the increased costs involved.

The post covid boom only stoked this confidence, but the devastating inflation that has followed has started to be felt. Inflation forecasts of 8% or more are making potential buyers less positive about the future, and the news from Ukraine is depressing confidence still. An increase in the energy price cap in April will see bills jump by 54% followed by another expected 35% rise in October

Then of course there is the increase in tax, with increased National Insurance and allowances frozen 

UK households are facing the sharpest drop in real disposable incomes since records began in 1947, off the back of surging inflation and fast rising taxes. Suddenly there is less spare cash to spend on homes.

But the lack of confidence is not the only factor that could burst the house price bubble. 

Rising interest rates

The spectre of inflation has caused the Bank of England to increase interest rates in an attempt to stop the economy overheating. There signs are that they will be increasing still further over the next few months.

Rising interest rates will filter quickly into higher mortgage costs.

The end of the cheap mortgage bonanza may be the final straw. There is some suggestion that recent market gains have been the result of buyers anxious to ensure an affordable deal before the low rates disappeared for good.

What happens now?

Affordability is already a problem for buyers on the bottom rungs of the housing ladder. First-time buyer affordability has been squeezed on many fronts. Mortgage costs will be rising just as it is becoming much harder to save for a deposit.

The market has been buoyed by first time buyers getting on the property ladder in recent years. 

The first-time buyer share of the housing market has just hit its highest point since June 2000, according to trade body Propertymark. First-time buyers accounted for 37% of all sales in February, up from 29% in January.

If the competition to get on the first rung of the ladder is removed, the momentum driving people up the market is no longer there to push up prices.

Analysts have warned the boom could cool fast as the cost of living crisis sets in.

What can you do?

A rising property price is something that we have all come to expect in recent years, but it has always been obvious that the boom would eventually come to an end.

A return to slower growth may be likely in the next few months, and rising interest rates may make buying a home more expensive. 

It could be time to switch an existing mortgage to a fixed rate, to lock in the low repayments which are still available for as long as possible. If you are looking to make a move, it is certainly time to shop around for the best deal available.

Fortunately, it is simple enough to do both.

Simply call us at Continuum. We can search the market to find the home loan that is best for you.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable mortgage product, you should seek independent financial advice before embarking on any course of action.

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

You may have to pay an early repayment charge to your existing lender if you re-mortgage.



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