Will real estate prices go down?

Interest rates are rising and more hikes are expected in the coming months as the Bank of England seeks to rein in inflation – which is expected to exceed 10 per cent this year.

That number – the highest since 1982 – is justifiably worrying, but the housing market has allowed price inflation of 10 per cent for long periods. The latest official figures released on Wednesday show that house prices in England rose 9.9 per cent in the year to March, taking the median selling price to £297,524.

Ultra-low interest rates have made mortgage borrowing cheaper and inflated a property bubble that has made home ownership a distant dream for many renters in some parts of the UK. So, will higher interest rates help cool the country’s runaway housing market?

What is the latest data on UK property prices?

Official figures show that prices have increased in all regions of the UK over the past year. Between February and March 2022, prices fell by 0.9 per cent in London and 0.8 per cent in the east of England.

Figures released by Halifax on Friday, which predate the Bank of England’s rate hike, show there weren’t many signs of a slowdown in April.

Despite fears over the cost of living and soaring energy bills, house prices rose 1.1 per cent (around £3,000) compared to March.

The average house price hit £286,079 after the 10th consecutive monthly price increase, marking the longest run of price increases in six years.

Halifax said a “race for space” that began during the pandemic is likely to continue as people move from apartments in cities to larger homes in more rural areas.

April price growth was a little slower than the 1.4 percent recorded in March, but the annual increase was still 10.8 percent, well above average wage increases.

Some analysts had expected the stock’s rise to calm down after the end of the stamp duty holiday last year. That didn’t happen.

There are other signs that prices may not drop any time soon. The number of sales increased by 28 percent in April compared to January.

Estate agent Chestertons said it had seen a 31 per cent increase in the number of people signing up for viewings at its London branches.

Chief Executive Guy Gittins said there is now a “strong seller’s market” and the number of suppliers willing to lower their asking prices has fallen 38 percent over the past year.

“The sheer volume of agreed sales in April created a challenging workload for lawyers and banks, which has impacted the time it takes to complete a sale,” he said.

Rising interest rates will affect some buyers’ ability to buy a home, but the impact may be limited.

What is driving UK house price increases?

Prices have been pushed up by the availability of cheap credit. While interest rates are rising, they still remain very low by historical standards. Buyers with a large down payment can still get a two-year fixed deal at an initial rate of about 2 percent.

The supply of housing also remains a problem. There aren’t enough qualities that people want in the areas where they want them.

The market now has a clear dividing line between homes that are in high demand and apartments that are proving more difficult to sell in many areas.

Britain’s planning system has been accused of slowing new property construction and restricting supply.

The government recently scrapped proposals to radically overhaul the system and replace it with a zoning model, which would make approving developments in designated areas much quicker. Instead, the Queen’s speech spoke of a less ambitious plan.

Big developers are also being criticized for hoarding large amounts of land that may go undeveloped for years. Meanwhile, developers are benefiting from holding the land as values ​​continue to rise while new home supply is limited.

These factors are not affected by rising interest rates.

What next for UK property prices?

Real estate market experts are divided on where home prices will go next, but few are predicting a big drop this year.

Tom Bill, Knight Frank’s head of UK residential property research, said the latest bout of price growth appears to have peaked last month.

“We don’t expect prices to fall, but we’re probably in the last month or two of double-digit annual growth,” he said.

“The psychological effects of a policy rate rising above 1 percent, higher mortgage rates, a drop in the cost of living and the gradual rebuilding of supply will all contribute to the slowdown when house prices come back to earth later this year.”

Halifax expects house price growth to slow further as affordability becomes tighter.

“The house price-to-income ratio is already at its highest level ever and with rising interest rates and inflation putting further pressure on household budgets, it remains likely that the rate of house price growth will slow through the end of this year,” he said he Russell Galley, Managing Director of Halifax.

Capital Economics is also forecasting a significant slowdown in price growth towards the end of the year.