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House prices are up again this month but what does this mean for the long term future of the UK housing market?

As of Wednesday, mortgage lender Nationwide said that October showed a 3 month high in house price growth. Prices are up by 2.5% on the year from the previous 2.3% that was seen in the month of September. The reason as to why this may come as a surprise to some is because previous predictions by analysts suggested, that inflation would slow to 2.2%. Whilst these are only minor changes it is important to recognise the amount of scepticism amongst the current housing market.

There is an uncertainty with regard to how much house prices will rise due to fragile confidence. Not only this but there is also an increased pressure on household budgets as well as wages not rising as fast as the cost of living; this all contributes to an unstable climate. One key reason as to why house prices are going up could be due to the lack of homes, creating a strong demand and thus a price increase. However, it is this shortage of homes combined with low mortgage rates which is really affecting the increase on prices. It is important to note that we should not be too optimistic about this ‘3 month high’ in prices given that the rate of increase is moving at about half the pace it was in 2016. At the current moment, the average price for a UK home stands at £211,085 but this could all change as the Bank of England has decided to raise its official bank rate.

The increase in interest rates is the first change in more than 10 years and frankly, buyers could be put off by the thought of more to come. Public uneasiness has already been seen with the demand for 5 year fixed mortgage deals at a record high. Although the rise in interest rates will be greeted with a sense of worry it should be noted that it is only a quarter point rise from 0.25% to 0.5%. Realistically, the rise will have a relatively modest affect on most mortgage holders. If we are to take an average mortgage, then it would only mean a £180 per year increase. Whilst no increase is welcomed, the sentiment surrounding it will no doubt be taken out of proportion, creating even more instability amongst buyers.

Leaving the EU already creates uncertainty in the housing market without the need for exacerbating the situation with a misinformed idea of what the possible rise in interest rates means. The demand for housing in the UK from overseas investors would remain strong and economic forecasts suggest a growth in house prices, at least until the near future of 2021.

Predictions suggest between a 2-3% increase in prices by the year 2021; this is significantly lower than the average of the last 20 years but a rise nonetheless. The announcement from the Bank of England is one to watch out for but not one to completely topple the housing market. It will be interesting to see how the increased interest rates affects housing market psychology compared to the statistics of mortgage holders.

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