Throughout 2021 house prices expanded rapidly, buoyed up by low interest rates and a temporary cut to stamp duty. Despite the end of the stamp duty holiday and rising interest rates prices have continued to defy gravity prompting ongoing speculation of when the market may cool. Today new data from the Office for National Statistics (ONS) revealed price increases remaining stubborn with the average price rising £27,000 year on year in December. The annual rate of growth rose to 10.8 percent in December, up from 10.7 percent the month before.
During this time the average price of a UK home rose by £3k in just one month.
The data comes following two consecutive interest rate hikes by the Bank of England with speculation mounting of a third one to come in March.
Karen Noye, mortgage expert at Quilter, warned it was now “inevitable” a slow down would come this year.
She explained: “Alongside inflation and the threat of a further rate rise, energy prices continue to soar and many people are beginning to feel the stretch financially.
Emma Cox, Sales Director at Shawbrook Bank, warned first time buyers would be “the biggest losers”, adding that for new buyers “securing a competitive mortgage with a fixed rate will be imperative.”
Cheap deals have increasingly been disappearing from the market though as interest rates have risen, with analysis from Moneyfacts finding average fixed deals rising in cost with fewer deals overall available on the market.
While rising costs may work to dampen demand for housing, one driver keeping prices up continues to be supply with ongoing shortages in housing stock.
Construction of new homes was stalled by the pandemic and shortages of labour and building materials whilst the last few years have also seen less homes put up for sale as would be sellers delayed plans.
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The housing market has also become increasingly imbalanced with surging demand for larger and more rural homes during the pandemic ‘race for space’ and lack of interest in inner city flats.
Sarah Coles, Senior Personal Finance Analyst at Hargreaves Lansdown, commented: “Right now, there’s a floor under prices, because of the shortage of properties for sale, after a year and a half of buyer numbers rising and seller numbers falling.
“However, early indications from RICS are that the new year encouraged more sellers into the market, which should make life easier for buyers, but could weaken price rises.
“If price rises slow, it could further damage buyer confidence, which in turn could dent demand again.
“At this stage we’re not expecting property prices to drop, but there could be tough times ahead for the housing market.”