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Huw Pill, Chief Economist of the Bank of England, said higher interest rates are unlikely to cause a crash in the UK housing market.
The central bank’s decision to raise borrowing costs at the fastest pace in 27 years is cutting in on the ability of buyers to afford mortgage. According to Pill, the BOE is trying to bring down inflation, which may top 12% this year.
The hikes of the BOE are designed to curb demand in the economy, and that is partially working through the housing market, which we would expect to cool, said Pill. There is some resilience there, and we are not going to see the dramatic downturns we have seen in the past.
The bank’s actions are starting to slow the runaway growth in property prices. According to the mortgage lender, UK house prices fell for the first time in a year.
Monthly mortgage payments for first-time buyers will be 40% of their incomes, a level not seen since 2012 as a result of the increase in the key rate.
If rates rise further, it’s important to think about whether you will still be able to afford repayments, said Andrew Bailey, the governor of the Bank of England.
The housing market in the UK is being affected by the cost of living crisis.
The source is Halifax.
The average cost of a home in the UK fell for the first time in over a year in June. The pace of increase is waning as values are still 11.8% higher than a year earlier.
The start of a material loss of momentum for the housing market is expected as a result of the slowing of the economy. Households across the income spectrum are facing a brutal cost of living squeeze, with inflation set to hit more than 13% in the fall, and the strain is being made worse by rising borrowing costs.
Tom Bill, head of UK residential research at Knight Frank, a real-estate agent, said that monthly declines in house price growth will get sharper. Mortgages have become noticeably more expensive in recent months, which will affect demand as cheaper offers made earlier this year expire and people roll off fixed-rate deals
At a time when affordability for first-time buyers is more stretched than ever, the hit to living standards is taking hold. Figures from mortgage lender Nationwide Building Society show that prices barely rose last month.
Mortgage approvals fell further below their pre-pandemic levels in June and are already having an impact on borrowing costs.
The market is stalling, not slumping, with prices being supported by a shortage of homes for sale and savings built up during lock-up.
Extra funds saved during the Pandemic, fundamental changes in how people use their homes and investment demand are some of the drivers of the current market. The extremely short supply of homes for sale is a significant long-term challenge, but it serves to underpin high property prices.
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With help from Andrew Atkinson.
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