House Price Forecast: Prices Continue to Soar Despite Interest Rate Hikes and Inflation | City & Business | Finance
Throughout 2021, house prices have risen rapidly, supported by low interest rates and a temporary stamp duty reduction. Despite the end of the stamp duty exemption and rising interest rates, prices continued to defy gravity, prompting speculation about when the market might cool down. Today, new data from the Office for National Statistics (ONS) revealed that price rises remained stubborn, with the average price rising by £27,000 year-on-year in December. The annual growth rate rose to 10.8% in December from 10.7% the previous month.
During this period, the average price of a house in the UK rose by £3,000 in just one month.
The data follows two consecutive interest rate hikes by the Bank of England with speculation of a third to come in March.
Karen Noye, mortgage expert at Quilter, warned it was now “inevitable” for a downturn to occur this year.
She explained: “Along with inflation and the threat of another rate hike, energy prices continue to soar and many people are beginning to feel financial hardship.
Emma Cox, sales manager at Shawbrook Bank, warned that first-time buyers will be “the biggest losers”, adding that for first-time buyers “it will be imperative to get a competitive fixed-rate mortgage”.
Cheap offers are increasingly disappearing from the market as interest rates have risen, with Moneyfacts analysis revealing that average fixed offers are increasing in cost with fewer offers generally available in the market.
While rising costs may dampen housing demand, one of the factors keeping prices up continues to be supply with ongoing housing shortages.
Construction of new homes has been stalled by the pandemic and shortages of labor and building materials, while the past few years have also seen fewer homes put up for sale, as have plans delayed by sellers.
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The housing market has also become increasingly unbalanced with growing demand for larger, more rural homes during the pandemic “space race” and lack of interest in downtown apartments.
Sarah Coles, Senior Personal Finance Analyst at Hargreaves Lansdown, commented: “At the moment there is a floor below prices, due to a shortage of properties for sale, after a year and a half of increases in the number of properties for sale. buyers and a decline in the number of sellers.
“However, early indications from RICS are that the New Year has encouraged more sellers in the market, which should make life easier for buyers, but could weaken price increases.
“If prices rise slowly, it could further hurt buyer confidence, which in turn could drive demand down again.
“At this point, we don’t expect house prices to fall, but there could be tough times ahead for the housing market.”