The state of the housing market - mini report

The state of the housing market - mini report
Photo: Kindel Media [Pexels]

As we come out of the pandemic and leave behind the era of Covid-19 restrictions, are we seeing house prices screech out the last of their growth in the UK?

Office for National Statistics data for February shows, on average, house prices have risen by 10.9 per cent over the year. The monthly price change for a property in the UK was 0.5 per cent since January 2022.

The current cost of living is a major factor in consumer demand. Some economists have speculated that the UK is heading for the worst cost of living crisis since the 1950s

Energy prices have risen by 54 per cent; the average band D council tax bill has gone up by 3.5 per cent in England; and, on average, water bills are going to bloat by 1.7 per cent in England and Wales. On top of this, fuel prices have been pushed up to record high levels.

The tighter consumer pockets get, the less likely it is for potential homebuyers to be able to save for a deposit on a mortgage. 

The relatively small monthly hikes in house price growth have come as the Consumer Prices Index rising by 7 per cent.

One could argue that the value of houses are in fact decreasing in some areas, leaving property investors worried as to whether houses are indeed a good long term strategy for combating inflation. 

Estate agents have blamed ever increasing prices on a “lack of supply”, but one must consider that inflation also extends to the cost of building these houses. 

Yet, the end of the Help to Buy scheme is on the horizon and recent data shows that the scheme accounted for 43 per cent of housing completions in 2020.

With the end of Help to Buy in sight, will there be decreases in housing demand and eligibility, or even further reductions in supply? Developers are reportedly already nervous about being able to take advantage of the support that help to buy offers.

Products such as 95 per cent loan-to-value mortgages have been back for a while, but this, coupled with the cost of living, poses questions as to whether we will start to see a further increase in mortgage defaults in the coming years as affordability becomes more of an issue.

For those who are on fixed rate mortgages, they should be safe from rising interest rates, that is, until their time is up. 

On top of this, the Bank of England is in conversation to withdraw the affordability test, one of two, required criteria that a potential homebuyer must pass before taking on a mortgage. 

Possibly allowing more people to take on mortgages, or those who previously would not have been eligible to receive a mortgage, now would be, in these trying times. 

In March, FTAdviser collated the views of mortgage brokers and advisers on where they think the mortgage market is heading. Nearly all believed it was 'kaput'.