Record house prices, but no plain sailing for property market – Hargreaves Lansdown warns

Despite the average house price hitting a record high in December of £274,712 – up £27,000 in a year, Sarah Coles, senior personal finance analyst, Hargreaves Lansdown has warned that challenges lay ahead for the market.

ONS data out today found that the average house prices were up 10.8% in the year to December, up very slightly from 10.7% a month earlier.

Detached house prices were up 15.3%, while flats were up 5.7% and new build prices were up 22.1%.

Coles said: “House prices hit a record high in December. It looks like the property market sailed through the first Bank of England interest rate rise unscathed, but on closer inspection, the really rough seas lie further ahead. The next few months are unlikely to be plain sailing.

“There is a huge lag built into these figures, so what we’re seeing today is a measure of buyer enthusiasm in October and November. It tells us that we took early mortgage rate rises on the chin, but nothing more than that.

“During these months, speculation about possible rate rises had been building, and mortgage rates had started on an upward path. However, given that rates were still so low by historical standards, buyers may well have looked at the extra cost as a small and affordable change.

“The first Bank of England rate rise didn’t kick in until December, which we don’t see reflected in the figures for another month or two. This bumped up mortgage rates, but the real impact will have been psychological.

“At this stage, not only did the Bank raise rates, but it warned that more rises were on the cards, and the market started planning for a hike to 1% and beyond. It then followed this up with a second rise in February. It means buyers face rising rates for a significant period.

“We know how sensitive buyers are to changes they consider to be psychologically important – even when the real impact is relatively small. When the reduced Stamp Duty holiday was only offering very small tax savings they still rushed for the deadline in huge numbers. It means rate rises could put buyers off.

“Right now, there’s a floor under prices, because of the shortage of properties for sale, after a year and a half of buyer numbers rising and seller numbers falling. However, early indications from RICS are that the new year encouraged more sellers into the market, which should make life easier for buyers, but could weaken price rises.

“If price rises slow, it could further damage buyer confidence, which in turn could dent demand again. At this stage we’re not expecting property prices to drop, but there could be tough times ahead for the housing market.”