Market to get tougher despite upbeat house price figures

The prospect of higher mortgage interest rates mean the housing market may get tougher soon despite another set of upbeat house price figures.

The average house price has hit a record £270,000 after surging by £28,000 over the past year, figures from the Office for National Statistics show.

Across the UK, prices rose 11.8 per cent over the year to September, accelerating from 10.2 annual growth in August.

Miles Robinson of mortgage broker Trussle has responded by saying: “The Stamp Duty Holiday incentivised buyers to accelerate their moving plans in order to save up to £15,000 in costs. As such, house price growth leading up to September was incredibly strong. 

“But, while the market remained buoyant because of the Stamp Duty Holiday, the months ahead will likely be more difficult as buyers may start to view the market with caution. 

“We have already seen the much publicised sub 1.0 per cent mortgage deals begin to disappear, and a rise in interest rates is certainly on the cards. Alongside this, it looks set to be a difficult winter for household finances. Families are facing a steep rise in energy bills and an increase in the general cost of living. 

“This squeeze in consumer spending will almost certainly impact people’s ability to save for deposits and ultimately move home. But, for those staying put, now could be a good time to remortgage, as rates remain competitive.”

This concern is echoed by Tom Bill, head of UK residential research at Knight Frank, who says ultra-low borrowing costs have underpinned demand - until now. Longer term, there will need to be a readjustment as mortgage rates normalise, a process that has been delayed by the pandemic. Interest rates were 0.75 per cent in early 2020 before Covid struck and we wouldn’t expect any meaningful impact on prices or demand while they remain below that level. 

He says: “However, what’s different between now and early 2020 is the higher cost of living, which may cause demand to start fraying around the edges depending on how elastic the definition of transitory becomes in relation to inflation.”

Meanwhile leading housing market commentator Jeremy Leaf, the north London estate agent and a former RICS residential chairman, comments: “On the one hand, the ONS property index is the most comprehensive of all the surveys but on the other, it is a little dated. Nevertheless, it provides an excellent snapshot of housing market activity at the time as most buyers struggled to take advantage of the reducing stamp duty concessions. 

“Since then the market has calmed and price growth has softened as so many brought forward moving decisions. Prospects remain good, however, as buyers and sellers defy worries about rapidly soaring inflation and rising interest rates.”