House prices have so far continued to maintain last year’s momentum, with the average asking price reaching £354,564 in March, a 1.7% increase from February. According to Rightmove, March also saw a year-over-year increase in asking prices of 10.4%, continuing the double-digit growth trend seen last year. Analysts at consultancy Pantheon Macroeconomics say the chances of this kind of growth continuing through 2022 are low, describing the outlook for this year as “much less rosy”. One of the factors pushing last year’s growth has been rock bottom interest rates, with the base rate just 0.15% for most of 2021.
The Bank of England has now raised the cost of borrowing by up to 0.75%, after three consecutive increases.
Research firm Capital Economics forecasts the base rate to reach 1.25% by the end of the year and up to 2% in 2023.
Pantheon Macroeconomics predicts that interest rates need to rise further in the short term, predicting that the average quote for a two-year fixed mortgage with a 25% deposit is expected to reach 2.3% by June, from 1, 76% in February.
Meanwhile, the group points to a projected 2% drop in disposable income as further evidence of reduced ability to spend on real estate.
While many households have accumulated savings during the pandemic, consumer confidence has fallen in recent months, suggesting shoppers should become more cautious.
This month’s data from the Building Societies Association’s Property Tracker showed just 18% of people thought now was a good time to buy a property, the lowest figures since the tracker launched in 2008.
Nearly half said the affordability of mortgage payments would be a barrier, with 65% saying they were worried about the rising cost of living over the next six months.
Pantheon Macroeconomics therefore predicts that year-over-year house price growth will slow to around 3.5% by the end of 2022.
One of the factors maintaining a certain dynamism on the housing market remains the shortage of supply, in particular for certain types of properties.
Victoria Scholar, Head of Investment at Interactive Investor, commented: “Despite rising interest rates and uncertainty around Ukraine, the supply and demand imbalance continues to support the upward trajectory of real estate prices.
“In fact, knowing that interest rates are set to rise further, motivated buyers are clinging to currently lower mortgage rates.
“Growth in London is lagging behind the wider UK as the shift to work from home lifts calls for larger properties beyond the capital.
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“Demand for larger properties with space for a home office and garden continues to be a key driver, with larger homes attracting more buyers than apartments without outdoor space.”
According to Rightmove, there is still a large imbalance between supply and demand with more than twice as many buyers as sellers.
It has also been seen that the demand for larger homes with gardens and spaces for home offices has increased as the work from home elements continue for many.