‘Not so rosy’ Warning issues over house prices – market set for another hit to growth

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House prices have so far continued to maintain last year’s momentum with the average asking price hitting £354,564 in March, an increase of 1.7 percent on February. According to Rightmove, March also saw a year on year increase in asking prices of 10.4 percent, continuing the trend of double digit growth seen last year. Analysts as consultancy Pantheon Macroeconomics believe the chances of this sort of growth sustaining throughout 2022 are low, describing the outlook for this year as “far less rosy.” One of the factors pushing last year’s growth was rock bottom interest rates with the base rate at just 0.15 percent for almost all of 2021.

The Bank of England has now hiked the cost of borrowing up to 0.75 percent, following three consecutive increases.

Research firm Capital Economics predict the base rate will reach 1.25 percent by the end of the year and up to two percent in 2023.

Pantheon Macroeconomics forecast interest rates still have much further to rise in the short term, predicting the average quote to a two year fixed mortgage with a 25 percent deposit is on course to reach 2.3 percent by June, up from 1.76 percent in February.

Meanwhile, the group points to a predicted two percent decline in disposable income as further evidence for reduced ability to spend on property.

While many households built up savings during the pandemic, consumer confidence has fallen in recent months suggesting buyers are likely to become more cautious.

Data for this month from the Building Societies Association’s Property Tracker showed just 18 percent of people thought now was a good time to buy a property, the lowest figures since the tracker began in 2008.

Nearly half said affordability of mortgage payments would be a barrier with 65 percent reporting being worried about rising living costs in the next six months.

Pantheon Macroeconomics predict year on year house price growth will therefore slow to around 3.5 by percent by the end of 2022.

One factor maintaining some momentum in the housing market continues to be shortages of supply, particularly for certain types of properties.

Victoria Scholar, Head of Investment at interactive investor, commented: “Despite rising interest rates and uncertainty around the Ukraine, the imbalance been demand and supply continues to underpin the rising house price trajectory.

“In fact, with the knowledge that interest rates look set to rise further, motivated buyers are locking in the current lower mortgage rates.

“Growth in London is lagging the wider UK as the shift towards working from home lifts demand for more spacious properties beyond the capital.

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“Demand for bigger properties with space for a home office and a garden continues to be a key driver with bigger houses attracting more buyer activity than flats without outside space.”

According to Rightmove there is still a big imbalance between supply and demand with more than twice as many buyers as sellers.

Demand for larger homes with gardens and space for home offices was also found to have increased as elements of working from home continue for many.

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