Property market continues to defy gravity

Average UK house price hit a new high, of £276,755 in February – up £27,000 in a year. Average house prices were up 10.9% in the year – so the rate of growth has accelerated slightly. Detached house prices were up 14.4%, and semi-detached were up 11.4%, while flats were up 8.1%. New build prices were up 19.3%.

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown says: “The property market continues to defy gravity. Despite rising rates and runaway inflation putting the squeeze on affordability, February saw another record average price, and it was another month where your house made about as much money as you did. But while it may feel like a property boom that can endure through rising inflation and interest rates could defy any challenge, there’s a risk that prices will eventually start to soften.

House prices in February were up 10.9% in a year. It’s not quite the white heat we were feeling in June last year when they hit a peak of 13.5%, but they’ve been gradually warming up again. The Bank of England’s report into business conditions highlighted that for the first three months of 2022, demand was booming, particularly among first time buyers, so it was a sellers’ market.

However, change may be on the way. We already know that mortgage companies are increasing the assumed costs in their affordability calculations, which will make it harder for people to get a mortgage. We also know that fewer mortgages were approved for future purchases in February – although the levels are still above those seen before the pandemic.

Meanwhile rising prices and higher rates are feeding into the cost of new mortgages. The average rate on a new two-year fixed rate mortgage is up to 2.88% (according to Moneyfacts), and if the Bank of England continues raising rates along with market expectations, we could see the average two-year fixed rate mortgage top 4% this year. At some point, we may get to the stage where either buyers or lenders decide enough is enough.

The imbalance between supply and demand is likely to put a floor under prices, so we’re far more likely to see a slowing in price rises rather than falls themselves. However, the spring and summer may well see the market dynamics start to shift.

The question is how over-stretched buyers will get in the interim. Unfortunately, this kind of market makes buyers feel under pressure to make higher offers in a desperate scramble over the few properties that are up for sale. First time buyers feel the pressure to get onto the property ladder before prices rise even further out of reach, and second-steppers feel that if they don’t bridge the gap between the price of flats and houses now, they never will. There’s a real risk that in order to do so they will take on mortgages that put their finances under even more strain.

There’s nothing wrong with buying right now. If you have the money to do so, and plenty of room in your budget for rising mortgage costs, then as long as you’re in it for the long haul, it doesn’t make much difference what happens to house prices in the short term. However, if you’re stretching your finances to breaking point in a panic over rising prices, this is a good time to consider your options.”

Other February house price statistics

• House prices in London were still the highest in the UK, at £530,000.
• Prices in Wales saw the highest annual growth at 14.2%, while London saw the lowest annual growth of 8.1%.
• Prices in the North East remain the lowest in the country, at £153,000

ONS House price data for February – UK House Price Index: February 2022 – Office for National Statistics (ons.gov.uk)

Land registry data for February – UK House Price Index for February 2022 – GOV.UK (www.gov.uk)