Plastic red house sitting on a pile of money

Will house prices continue to rise rapidly?

Over the last year, house prices have continued to rise rapidly. Figures show that house prices have reached record highs, but is it a trend that will continue?

Even the challenges the pandemic presented to the housing market did not stop house prices from increasing. In fact, the pandemic may have contributed to their rise. After spending more time indoors and embracing working from home, many families have been seeking more floor space and a larger garden to enjoy.

A temporary Stamp Duty holiday was introduced when there were concerns that the pandemic would slow the housing market down. However, this came to an end in September 2021 and, so far, prices remain high.

According to the Halifax House Price Index, the average property in the UK was priced at £267,587 in September 2021. That’s after house prices experienced growth of 7.4% in just a year.

Forecast: House prices will slow but they won’t fall

While expert forecasts suggest that the pace of growth in the housing market will slow, house prices are still expected to rise.

According to Hamptons, as reported in the Guardian, between 2022 and 2024, house prices will increase by up to 3.5% a year. While that might be lower than the rise over the last year, it’s still a significant amount. On an average property, that’s a rise of just under £10,000 a year.

If you’re already a homeowner, rising house prices can help make the cost of your mortgage cheaper. As house prices rise, the more equity you’ll own in your home. As a result, you can often access more competitive interest rates. If you’re remortgaging, it’s worth checking how much your home is now worth to take advantage of prices rising, and keeping this in mind for the future too.

3 things that could affect the housing market

While house prices are expected to continue rising, the yearly increases are predicted to slow. A variety of reasons could play a role in this trend, including these three.

1. Interest rates are expected to rise

The UK has had low interest rates since the 2008 financial crisis. For borrowers, including those with a mortgage, this has meant the cost of servicing debt has been lower. When taking out large loans, for instance, to buy a home, even a small difference in the interest rate can add up.

Before the pandemic, it was suggested that the Bank of England would begin to raise interest rates. Now, interest rates could be used as means to slow the high levels of inflation the UK is experiencing. It means the cost of paying a mortgage will rise and could slow the market down.

2. Inflation is placing pressure on household budgets

As mentioned above, inflation in the UK is high. The Bank of England has a target of 2% inflation a year. For 2021, it’s expected inflation will be around double this goal.

Inflation means the cost of goods is rising, from household essentials to luxuries. As the cost of living increases, some households will find that their budgets are tighter, especially if salaries fail to keep pace. This could have a knock-on effect on the housing market if families decide to stay in their current homes to feel more secure.

For existing homeowners, it may mean families don’t want to take on larger mortgages and move up the property ladder. For aspiring first-time buyers, budget pressures could mean they find it much harder to save the deposit they need or access a mortgage.

3. First-time buyer support schemes are coming to an end

Finally, in the next few years, some of the support schemes put in place to help first-time buyers will be ending.

The Help-to-Buy Equity Loan Scheme, for instance, will close in 2023. This scheme has provided loans to thousands of first-time buyers in England to lower the deposit they need to save and the mortgage they need to be approved for. Similarly, the Help-to-Buy Scheme in Scotland will close in April 2022.

These schemes have played a vital role in the housing market by providing first-time buyers with much-needed support. If first-time buyers struggle in the coming years to take that first step onto the property ladder, it could affect the whole market.

Of course, these schemes could be extended or new schemes brought in to fill the gap, but for now, their future remains uncertain.

If you need help securing a mortgage, whether you’re buying a new home or remortgaging your existing home, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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