House Prices Rise in January – But What is the Outlook for 2022?
The housing market has had its strongest start to the year in 17 years according to the latest House Price Index from Nationwide.
House prices rose annually by 11.2% in January this year, this is up from 10.4% in December 2021. In addition, in January the average price of a property in the UK was recorded as £255,556, which is a 0.8% increase by 0.8% in December. However, despite this strong start, will house prices stabilise this year?
Following the Bank of England rate rise today from 0.25% to 0.5%, the Bank has warned that prices could climb faster than pay putting pressure on household finances. The news came as the Chancellor announced a support package to help households manage the rise in energy bills.
Inflation is expected to peak at 7.25% in April and average at around 6% this year.
How the rate rise will impact homeowners
This rise in interest rates to 0.5% could slow down the house price boom we’ve seen in the past 18 months. Prospective buyers will now need to balance their finances much more carefully if costs continue to rise and price growth doesn’t cool as quickly as expected.
Before interest rates went up, there were signs that low mortgage rates were starting to come to an end with several lenders raised the rates for those applying for a mortgage. Over the last year there have been plenty of mortgage products that have been attractive even to those with a small deposit.
At present, 74% of mortgage borrowers in the UK are on fixed-rate deals, so they would not see a change to their monthly repayments until their current term ends, according UK Finance. Around 1.5 million fixed-rate deals will come to the end in 2022, and another 1.5 million will end in 2023. Of the remainder, 850,000 homeowners are on tracker deals, and the other 1.1 million are on standard variable rates (SVRs). These people will feel an immediate impact following the latest rate rise.
UK Finance figures show that the latest rate rise will result in a typical tracker mortgage customer’s monthly repayment going up by £25.76 and the typical SVR customer is likely to pay £15.96 more each month.
Since 2014, every mortgage applicant will have gone through the lenders’ affordability test and proved that they could pay at a rate of about 6% or 7% – the idea being that a small rate rise is still affordable for homeowners. However, at present the Bank of England is consulting on whether to stop the current affordability rules.
Market commentators are predicting that, as a result of rate rises and an increase in inflation, the housing market is likely to slow down later this year.
Annual house price growth accelerated to 11.2% in January, which is the strongest pace since June 2021, and the strongest start to the year since 2005. The current property prices are making it increasingly difficult for first time buyers to secure a home especially with reduced affordability which will dampen demand. Consumer price inflation reached 5.4% in December which is more than double the Bank of England’s 2% target.
If you’re considering a move, now could be the best time to secure a mortgage – interest rates are still historically low and there are a range of great fixed-rate deals available. In addition, demand is still high whilst house prices are still rising – making it an optimal time to move up the ladder. Contact us for a free appraisal of your home.