Riverbank of terraced houses
Published on 29th September 2022

Industry news: UK property forecast

Despite the tough economic climate impacting buyers’ finances, house prices continued to grow by double digits this summer. Is the market now slowing?

Mortgage lender, Nationwide, reported a 10% rise in UK house prices in the year to August 2022, with the typical property value increasing by £50,000 in the last 24 months to £273,751. There are, however, signs of a slowing market, with growth slightly lower than the 11.8% figure in July.

Industry forecasters predict a dip, not a crash, even if a recession hits the UK later this year. There remains strong demand for homes, which continues to outstrip supply, but larger household energy and food prices over the coming months will put pressure on household budgets. Higher interest rates will also be a key market factor if these result in rising mortgage rates.

Property prices are predicted to drop

Many analysts see the increase in interest rates as a turning point for a UK housing market that has had nearly a decade-long cycle of rising prices.

Negative equity (that is, borrowing more than the value of a home) has also been talked about for the first time since the financial crash of 2008. As the BBC points out, this is unlikely to affect long-term homebuyers, who have experienced ongoing rising property values over recent years. A market slump could, however, see property values dropping below the purchase price for recent homebuyers with a 95% mortgage. In 2008, property fell by 15%, but recovered a year later to being around 7% lower. Homeowners who were able to keep up with their mortgage repayments have since seen the value of their home rise.

Borrowers will feel the pinch

Property website Rightmove calculates that the August interest rate increase to 1.75%, set by the Bank of England to stem inflation, means monthly mortgage payments increasing to represent 40% of a person’s gross salary (on average). As reported by the BBC, this is a level not experienced for a decade.

Rightmove estimates that a new homeowner’s average monthly mortgage payment will reach more than £1,000, compared with just over £810 at the start of the year. This figure is based on the average asking price of a first-time buyer’s home being almost £225,000.

Rates analysts suggest that homeowners on tracker or standard variable rate (SVR) mortgages – some 20% of borrowers in the UK – will need to find an additional £50 to £60 every month. The average fixed-rate mortgage is now over 4% and is expected to rise. Industry body UK Finance calculates that there are 1.3 million fixed-term mortgages due to end in 2022, and a further 1.8 million will expire next year, when new rates will need to be negotiated.

Getting on the property ladder will be even harder

Even with property prices dropping, the increase in the cost of living and rising interest rates will unfortunately halt many people’s plans to save up a deposit for their first home. Additionally, the government’s Help to Buy scheme (introduced in 2013) ends next year and we await to see the impact of this change and any further developments.

Gateway Group will continue to keep you posted on property news.

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