Despite the general doom and gloom around the UK economy, the housing market continues to buck the trend. According to the Nationwide House Price Index, house price growth was up again in July, standing at 11% compared to 10.7% in June. After considering seasonal effects, prices rose 0.1% month-on-month, representing the twelfth successive monthly increase.

Since the market reopened after the first national lockdown, prices have boomed. This was fuelled largely by the stamp duty holiday and the mortgage guarantee scheme. The Rightmove House Price Index shows the average asking price reached £369,968 in June, a record high.

Why are prices still increasing?

There are several factors that are continuing to push prices up. Low unemployment is a contributing factor and the main factor that continues to push prices up is the shortage of housing stock. For some time now simply not enough houses have come onto the market to meet the demand. This means first time buyers can’t find properties and prospective sellers can’t find suitable places to move to. There are indications from estate agents that listings are beginning to pick up now, which should ease this pressure and slow down prices increases. Despite the recent rise in interest rates, the base rate is at 1.75%, low by historic standards.

When Covid restrictions were lifted last year, there was a sense that life would revert to “normal”. This hasn’t been the case in many areas of life and the economy, and the housing market is certainly one of these.

Will prices continue to rise?

There is a debate over how long the market can stay this strong. There is a growing feeling that the cost-of-living crisis will begin to make an impact soon. As of 10^th August, the inflation rate stands at 9.4%, the highest it has been for 40 years. With many people already feeling the squeeze on their finances, demand is expected to fall. Rightmove has stated that the combination of this and more properties coming onto the market is likely to see prices fall slightly in the second half of 2022.

Affordability becoming an issue

While house prices have been rising rapidly over the past few years, wages have grown at a much slower pace. This has increased the house price income ratio significantly. According to the Halifax, between the beginning of 2020 and the end of the first quarter of this year, house prices rose by 16.8%. Over the same period, average incomes increased by only 2.7%. This means the cost of buying a typical home in the UK is now 7.1 times average earnings, its highest ever level.

At Springtide Capital our experts monitor all market indicators closely, helping clients to find the best possible options for their circumstances, considering not just what’s happening now but what is likely to happen in the future. Speak to us today to see how we could help you find the solution that’s right for you.

To discuss your mortgage requirements today contact Springtide Capital on 020 8154 7280.

Sources

https://www.propertynotify.co.uk/news/nationwide-house-price-index-twelfth-successive-monthly-house-price-increase-is-a-slowdown-on-the-way/

https://www.rightmove.co.uk/news/house-price-index/

https://www.which.co.uk/news/article/whats-happening-to-house-prices-aVCwI8I22pBe

Home | Bank of England

https://www.whatmortgage.co.uk/news/housing-affordability-hits-all-time-lo

On 4^th August, the Bank of England announced interest rates would rise by 0.5% to 1.75%. This is the largest increase in 27 years. The decision was taken to try and curb the sharp hike in inflation, which stood at 9.4% in the 12 months to June 2022. With predictions this could rise to as high as 13% by October, further increases to the base rate are likely to follow in the coming months.

What does this mean for mortgage rates?

Following this rate rise, many of the lenders and banks increased their rates for customers immediately, which affected anyone on a variable mortgage rate. Those on tracker mortgages, that follow the base rate, will also see an increase in their payments now.
Those on fixed rates are insulated from this rise for the moment. Currently, more than 80% of mortgages are on fixed-rate deals, so the impact will be limited for many people now.

Mortgage rates already on the rise

Even before this latest rise, mortgage rates had begun to creep up. According to financial specialists Moneyfacts, the average cost of a two-year fixed rate mortgage has gone up from 2.59% last June to 3.25% now. The average cost of a five-year deal has gone up from 2.82% a year ago to 3.37%. Independent research organisation Capital Economics have forecast the sharpest rise in mortgage rates since 1990.

Given the current situation, it’s important that people are aware of the terms of their mortgage and the state of their current deal. Being prepared and looking ahead will be vital in securing the best possible rate, protecting themselves from payment hikes, which is especially important given that the cost of living is increasing so rapidly.

Henry Knight, Managing Director of mortgage brokers Springtide Capital, said forward planning is essential to get the best deal:

“When the Bank of England Monetary Policy Committee next meets on 15^th September, all the indications are that base rates are likely to rise again and possibly by a larger margin than previously experienced. Lenders will react to this and adjust their products accordingly. It is our role to work with lenders and encourage them to stay as competitive as possible in the current climate. We’ll be flagging this with our clients to help them secure the best possible deal. It is possible to secure rates up to six months before the end of a current plan. We urge anyone coming to the end of their current deal to start talking to a broker at least seven months prior to that deal finishing. Acting early and decisively will be hugely beneficial and could save them a significant sum of money.”

At Springtide Capital we offer a personal service and are here to help every client find the best possible deal at the best possible rates. Speak to one of our friendly and experienced advisers today.

To discuss your mortgage requirements today contact Springtide Capital on 020 8154 7280.

Sources

https://www.bbc.co.uk/news/live/business-62406689

https://www.theguardian.com/business/2022/jun/26/covid-couldnt-cool-house-prices-but-the-economic-chill-might

https://www.theguardian.com/business/2022/jun/16/bank-of-england-base-interest-rate-rise-mortgages-savings-annuities-house-prices-rents-effects

https://www.mortgagesolutions.co.uk/news/2022/04/28/next-year-will-see-sharpest-rise-in-mortgage-rates-since-1990-capital-economics/