Despite the culmination of the stamp duty holiday, the UK property market shows no signs of slowing down.
After something of a cooling-off period in September, the average property rose in value by 9.9% for the year up to October – followed by a further 1% growth in November.
It shows that the market is remaining buoyant despite the pandemic – indeed, the average price of a house in the UK is £252,687, which is almost 15% higher than when everything kicked off in March 2020.
But there is a note of caution, with the actual number of transactions in October down nearly 30% on the same month in 2020.
A Matter of Interest
There are conflicting reports as to how the market is predicted to fare into 2022, however a proposed increase in interest rates may put some potential homebuyers off from securing a new mortgage – that would, in theory, be more expensive pound for pound.
Inflation will also lead to an increased cost of living, which at 4.2% has begun to rise at its fastest rate in a decade. That may impact upon the amount of savings that first time buyers are able to cobble together for a deposit.
The economist Samuel Tombs told the BBC that he expected house prices to slow in the first half of 2022, but that opportunities would still be available to hard-up Brits to secure their dream move. “Households can lengthen mortgage terms to offset the hit to monthly repayments from higher rates,” he said.
“In addition, the proportion of incomes that households are prepared to devote to housing might have risen permanently due to the pandemic and the long-term shift to working from home.”
It has been widely documented that interest rates in the UK will surely rise soon enough, with the perfect storm of the pandemic and Brexit – allied to inflation – making an increase almost inevitable.
One economist has predicted an increase to 0.25%, which would be the first major rise since the March 2020 call to cut the base rate to 0.1%.
That will represent excellent news for savers, but those with a variable rate mortgage may just see their bill increase exponentially.
Life Begins at 40
One reaction to the present economic situation that many find themselves in is the introduction of a 40-year mortgage.
That’s what one firm, Kensington Mortgages, are offering their customers, and the clear advantage is that homebuyers can borrow more while keeping monthly costs affordable relative to their income.
But it’s a move that could leave some paying off their mortgage well into their seventies – causing a potential crisis for those with only a state pension to their name.
The interest rates can be set across the lifetime of the deal, which is a 60% Loan-to-Value (LTV) mortgage with a rate of up to 3.34% across the 40-year term. A 90% LTV can be accessed, although the rates charged are rather eye-watering.
“Many clients may be able to borrow more – a significant benefit for first-time buyers or those looking to buy a more expensive property,” a Kensington spokesperson said.
Caught In a Bubble
Property prices are increasing, the cost of living is rising, interest rates are set to be lifted….those are all the conditions of a bubble that will surely burst in the near future.
For now, the picture is rosy enough because demand is outstripping supply, but as soon as potential homebuyers batten down the hatches and stay where they are as interest rates rise, the fear is that values will plummet.
There are warning signs that the property market is in the same condition as it was during the highs of 2007 – which precipitated the crash that came just a year later.
One mortgage expert told the Daily Express: “A crash is predicted by several factors coming together at the same time; rising inflation that leads to increased borrowing costs as central banks try to regulate the economy, over-inflated asset prices artificially pumped up by perhaps a tax break and low borrowing costs, rising unemployment and a contraction of the economy, brought on by supply chain issues, but mainly an inability to get credit.”
It’s a sad thing to have to report, but if you plan on buying/selling your property any time soon now might be the best time to act….