This figure – the highest since 1982 – is fairly worrying, but in housing marketprice 10 percent inflation was allowed to be stored for a long period. The latest official figures released on Wednesday show that property prices in England jumped 9.9 per cent in the year to March, bringing the average selling price to £ 297,524.
Ultra-low interest rates have made mortgages cheaper by inflating the housing bubble, making home ownership a distant dream for many tenants in parts of the UK. So, will higher interest rates help cool the country’s uncontrolled real estate market?
What is the latest data on house prices in the UK?
Official figures show that prices rose in every region of the UK last year. Between February and March 2022, prices fell 0.9 per cent in London and 0.8 per cent in the east of England.
Figures released by Halifax on Friday, which relate to the period before the Bank of England’s rate hike, show that there were no signs of a slowdown in April.
Despite concerns about the cost of living and a significant increase in electricity bills, house prices rose 1.1 percent (about 3,000 pounds) compared to March.
The average house price reached £ 286,079 after the 10th consecutive monthly rise in prices, making it the longest rise in six years.
Halifax said the “race for space” that began during the pandemic is likely to continue as people move from apartments in cities to larger houses in rural areas.
Price growth in April was slightly less than the 1.4 percent recorded in March, but annual growth was still 10.8 percent, well above average wage growth.
Some analysts expected that the rise in prices will calm down after last year’s holidays. This did not happen.
There are still signs that prices may not fall any time soon. The number of sales in April compared to January increased by 28 percent.
Chestertons real estate agent said the number of people who had registered to view at London branches had risen by 31 per cent.
CEO Guy Gittins said there is now a “strong market for sellers” and the number of suppliers looking to lower asking prices has fallen by 38 per cent last year.
“The huge volume of agreed sales in April created a heavy burden for lawyers and banks, which affected the time needed to complete the sale,” he said.
Rising interest rates will affect the ability of some buyers to purchase a home, but the effect may be limited.
What is driving the rise in house prices in the UK?
Prices were inflated due to the offer of cheap loans. While rates are rising, they still remain very low by historical standards. Buyers with a large deposit can get a two-year fixed deal at an initial rate of about 2 percent.
The supply of houses also remains a problem. In areas where they want, there are not enough real estate.
There is now a clear dividing line in the market between homes that are in high demand and apartments that are harder to sell in many areas.
The UK planning system is blamed for slowing down the process of building new facilities and restricting supplies.
Recently, the government rejected proposals to radically revise the system and replace it with a zoning model that would allow much faster approval of buildings in designated areas. Instead, a less ambitious plan was mentioned in the Queen’s speech.
Large developers are also criticized for accumulating large amounts of land that cannot be used for construction for years. Meanwhile, developers are making a profit from owning land as the price continues to rise while supply of new homes is limited.
These factors will not be affected by rising interest rates.
What about home prices in the UK?
Real estate experts are divided on where housing prices will move next, but few predict a big drop this year.
Tom Bill, head of housing research at Knight Frank in the UK, said the recent period of rising prices seems to have reached its peak last month.
“We don’t expect prices to fall, but we are expected to be in the last month or two of double-digit annual gains,” he said.
“The psychological impact of rising base rates above 1 percent, higher mortgage rates, lower cost of living and a gradual recovery of supply – all of this will contribute to a slowdown if house prices fall to land later this year.”
Halifax expects that housing prices will slow even further as affordability becomes more intense.
“The ratio of housing prices to incomes is already at the highest level, and due to rising interest rates and further inflation, which further tightens household budgets, it remains likely that the growth rate of housing prices will slow by the end of this year,” he said. Russell Gelli, Managing Director of Halifax.
Capital Economics also predicts a sharp slowdown in price growth by the end of the year.