‘Could be tough times ahead for the housing market’ - warning

A financial analyst says there could be tough times ahead for the housing market, despite another upbeat set of figures regarding house prices.

Sarah Coles, senior personal finance analyst at financial consultancy Hargreaves Lansdown, says that the latest Office for National Statistics data shows the average UK house price at a record high after a 10.8 per cent annual rise. 

She comments: “It looks like the property market sailed through the first Bank of England interest rate rise unscathed, but on closer inspection, the really rough seas lie further ahead. The next few months are unlikely to be plain sailing.”

Coles says the ONS figures relate to December, and reflect a lag in what is happening in the market right now. 

She believes the two interest rate rises announced so far by the Bank of England, in quick succession, will have had a psychological impact on the market that may have been greater than the financial impact.

She says: “We know how sensitive buyers are to changes they consider to be psychologically important – even when the real impact is relatively small. When the reduced stamp duty holiday was only offering very small tax savings they still rushed for the deadline in huge numbers. It means rate rises could put buyers off.

“Right now, there’s a floor under prices, because of the shortage of properties for sale, after a year and a half of buyer numbers rising and seller numbers falling. However, early indications … are that the new year encouraged more sellers into the market, which should make life easier for buyers, but could weaken price rises.

“If price rises slow, it could further damage buyer confidence, which in turn could dent demand again. At this stage we’re not expecting property prices to drop, but there could be tough times ahead for the housing market.”

The ONS figures put the average house price in December at £274,712 - that’s up £27,000 in a year. Average house prices were up 10.8 per cent in the year to December, up very slightly from 10.7 per cent a month earlier.

Detached house prices were up 15.3 per cent, while flats were up 5.7 per cent. New build prices were up a dramatic 22.1 per cent.

Agents have responded broadly favourably to the data, while conceding it relates to the pre-Christmas market. 

Mike Scott, chief analyst at online agency Yopa, says: “This rapid house price that is still in progress is being driven by stock shortages and post-pandemic lifestyle changes, but is obviously not sustainable over the longer term. We expect that the market will slow down later in the year.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, comments: “On the face of it, these figures show the housing market continuing its inexorable rise but maybe that isn’t the case. Looking behind the numbers we see prices, though a little historic, are virtually unchanged from the previous month. Buyers are coming to terms with reduced affordability which is compromising confidence to take on yet more debt as inflation hits record highs and interest rates are on the up too.”

And Jason Tebb, chief executive of OnTheMarket, adds: "Of more interest now is how the housing market is faring as we head towards what is traditionally the busy spring period. While instruction numbers are increasing, the number of available properties is still some way short of meeting pent-up buyer demand. Sellers coming to market now may well find considerable competition for their home from the many motivated buyers keen to move and take advantage of competitive mortgage deals.”