What Does the Current Housing Market Mean for Homeowners?

The UK housing market has been embarked on a universally upward trajectory of late, recording double-digit annual growth through Q4 2021 and the first half of 2022.

However, the typical UK home cost £272,259 in September of this year, with this figure broadly unchanged from the previous month. This reduced the annual growth in prices to just 9.5%, the first time it’s plunged to single digits since October 2021.

Worse could be to come, however, with some suggesting that the property market in the UK may be about to burst. We’ll explore this below, while asking what homeowners should expect in the near and medium-term?

The Current State of the Wider Economy

The recent depreciation of the market has followed a continued macroeconomic crisis, which has been characterised by rampant inflation and steadily rising interest rates.

Of course, the latter has naturally followed the former of late, with the Bank of England having initiated multiple base rate hikes since December 2021 as a way of combating a rate of inflation that peaked at 10.1% in July.

While a reduction in fuel prices offset rising fuel costs to drive overall inflation down to 9.9% in August, any positive sentiment was subsequently wiped by the recent budget announcement from new Prime Minister Liz Truss and Chancellor Kwasi Kwarteng.

By slashing tax rates indiscriminately and threating to remove the 45p tax rate for those earning more than £150,000 in the UK (a move which has since been scrapped), the government threatened to create more inflationary pressures that sent the markets scurrying and the pound plunging to historic lows against the dollar.

This caused the BoE to step in with a significant cash injection into the economy, while further interest rate hikes have been pledged going forward.

To this end, the base rate was recently hiked to 2.25%, while mortgage rates have surged beyond 6% of the first time since the financial crisis of 2008.

How Has This Impacted on the Property Market?

The rise in mortgage rates has hit the housing market hard, initially creating a scenario where some 40% of all mortgage products in the UK were withdrawn by lenders.

Combined with incredibly high rates of food inflation and the rising cost-of-living, this has driven down demand in the housing market, which has in turn created much slower growth and could ultimately trigger a depreciation in property prices over time.

Certainly, the current macroeconomic malaise is expected to continue for the foreseeable future at least, while a projected base rate hike up to 6% could caused property prices to drop by around 15% on average according to economists.

The situation is certainly bleak for homeowners, especially landlords who own several different buy-to-let properties. In this case, it’s important to speak to your property manager

(where applicable) or letting agents, in order to gauge real-time demand and prices and act accordingly.

For those of you who are potential buyers, it may be time to speak to your solicitor and check the viability of your mortgage product if you’re tied into an agreement.