Where do our house prices go from here?
Figures from Rightmove, out this week1, show that house prices are up 9.5 per cent on this time last year and 2. 3 per cent between January and February alone, with one independent property expert, Andrew Teacher2, stating that interest from buyers is “expanding and sprawling like a giant slinky spring”. Meanwhile the Land Registry’s House Price Index showed a 10.5 per cent year-on-year increase in prices for December 2021, partly driven by lack of supply3.
These are extraordinary figures: the Rightmove month-on-month rise in prices is the biggest jump for 20 years, but the question on everybody’s lips is ‘will they continue?’.
Reading the signs
Despite bullish comments from estate agents, with Guy Gittins of Chestertons4 saying that ‘buyer confidence has returned’ and predicting strong buyer interest for the first half of 2022, there are clouds on the horizon for those relying on house price growth.
The first of these is a distinctly chilly release5 from the government showing monthly property transactions for January, with property sales plummeting by over a fifth month-on-month and 12.6 per cent since last January (not seasonally adjusted).
That’s partly due to the bulge in sales created by the stamp duty holiday, but there are other factors that will weigh down demand as well. One is an increase in interest rates, which will affect monthly payments and affordability, and another is the rising cost of living, which obviously makes it harder for people to save for a deposit.
What about the regions?
The Halifax house price index, published earlier this month, gives us the strongest indications about how different regions of the UK are performing in terms of house price growth.
The North West was once again the strongest-performing region in England, and has the second highest rate of annual growth in the UK. London is the weakest performing area, but with house-price inflation now standing at 4.5 per cent, there was evidence that performance is accelerating6.
Prices in Wales, though, were the very fastest growing. With annual house price inflation of 13.9 per cent, the average house price in Wales is now £205,253.
What might happen next?
At present, mortgage rates are still relatively cheap, with figures from Moneyfacts showing it is possible to fix your mortgage for ten years for just 1.66 per cent with Lloyds if you have 60 per cent equity in a property .
Deals like this will still encourage people to move homes in the near future, while agents also report a continued lack of stock coming onto the market, which might keep prices artificially high for some time.
What should home movers and homebuyers do?
Despite a slight slowdown, and the problems with affordability that may come from a cost-of-living squeeze, lack of property on the market and interest from first-time buyers will continue to drive property sales.
Now that the Work from Home directive has been lifted, it may be that the exodus from London and other cities into rural areas will reverse, but we are yet to see the fallout from this yet.
As interest rates rise, fixing on good value mortgage rates will give many homeowners or movers peace of mind. At present, the best-value fixes are designed for those with the largest home deposits, or those who have a large amount of equity in their homes if they are remortgaging, so saving with this in mind will pay dividends.
For those planning to buy a first home, or to help their children onto the housing ladder, government incentives offered by the Lifetime ISA, which allows those under 40 to save for a first home or for retirement with added money from the government, may still be attractive.
If you want to use a Lifetime ISA, though, it is important to remember that you cannot buy a property with it worth over £450,000 – an increasing issue in more affluent areas as prices begin to rise.