As mortgage rates continue to rise, the future of the housing market is looking uncertain.
Many homeowners are facing higher mortgage payments, while renters may be feeling the pinch if their landlords have raised rates to offset rising costs.
How long can house prices hold out in a challenging economy?
Amid rising mortgage rates, experts have been predicting a house price slump for many months.
That’s because there is typically a correlation between mortgage rates and house prices.
The higher rates climb, the less home buyers can afford to borrow, so demand is likely to ease, and house prices pull back.
So, has this happened recently as rates have increased?
The Land Registry regularly releases data based on actual sale figures rather than asking prices.
It has revealed that average house prices rose by £9,000 in April 2023 compared to last year, representing a 3.5 percent increase.
But this is much lower compared to July 2022, when the year-on-year increase was 14.2 percent, so the recent data suggests a slower rate of growth instead of a fall.
It is worth stressing that demand for property during the summer of 2022 was partly driven by the government’s stamp duty holiday.
How house prices vary between regions
Average property figures differ between regions, too.
While Scotland’s average house prices rose by 2 percent annually, Northern Ireland’s property prices rose 5 percent.
For most regions, the monthly change in house prices was mostly positive in April, although drops happened in Northern Ireland, the South East and East of England.
The latter two regions have historically experienced high house price growth compared to the rest of the UK.
These drops could indicate the start of a nationwide fall, starting with places where house prices are particularly high.
Given that house prices grew in London (a 2.1 percent rise compared the previous month), it is possible that the surrounding regions are less popular than the capital.
Will mortgage rates go up again?
After the Bank of England Base Rate stayed low during the Covid-19 pandemic, it increased in late 2021 for the first time in three years.
Since then, rates have increased regularly and are now at 5 percent, much higher than the 0.25 percent Base Rate in December 2021.
In June 2023, the average rate on a new two-year mortgage deal reached over 6.5 percent.
Thousands of homeowners on a fixed-rate deal have been shielded from increases in their monthly payments as they secured mortgages when rates were low.
But as these deals end, they now expect to pay significantly more each month.
Experts predict that interest rates will rise again, given that inflation remains stubbornly high.
And if they do rise again, demand for property may fall, as well as house prices.
Is now a bad time to buy or sell a house?
If you’re a homeowner, you may be in a difficult position.
According to Rightmove, there is less demand for property, which may impact the price you get for your house.
Also, securing a buyer is taking longer than before compared to the last few years, increasing to 55 days from 33 days last year, according to Rightmove.
If you want to move, it may be wise to allow yourself more time to sell than previously expected.
On the other hand, the slower rise in house prices may encourage some first-time buyers.
For many, the challenge will be securing a mortgage as rising rates will impact affordability.
If you want to get on the property ladder, it can be helpful to seek advice and work with a mortgage broker to find the best deal for you.
What is the future for the housing market?
There’s no clear answer to this question. Average property prices are resilient, but the Office for Budget Responsibility (OBR) expects property prices to fall 9 percent by autumn 2024.
If mortgage rates continue to increase, the housing market will be under more pressure, and prices will likely fall.
Most experts expect house prices to fall, but there's no consensus on the extent of any falls.
If you are considering buying a home in the next few months, it is a good idea to speak to a mortgage broker, which you can find through Unbiased.
They can help you prepare and find the best deals for you.