Despite the turbulence of the past few years, the housing market has remained resilient.
However, the huge squeeze on affordability is now taking a real toll and downward pressure on house prices in the coming months is inevitable.
The latest Government house price index shows house prices were flat in May, down from a 0.5% uptick in April. What’s more, year-on-year prices increased by just 1.9%, down from 3.2% in the 12 months to April 2023.
Given this morning’s figures only account for the 12 months to May 2023, they do not yet reflect the impact of the rapid spike in mortgage rates seen in recent weeks.
Average 2-year fixed rate mortgages are now well above 6%, and people’s ability to afford their growing mortgage payments will be called into question, and prospective first-time buyers may be put off by the prospect of committing to such high monthly rates.
In the coming months, we could see those people who have overstretched themselves looking to sell their properties at a time when demand is heavily reduced.
However, the recent Mortgage Charter will give homeowners a bit of breathing space and should limit the number of distressed homeowners being forced to sell their properties, so we are unlikely to see a flood of such sales.
The past few weeks have been a particularly challenging time for the mortgage market, and we are thankfully now starting to see some semblance of normality resume as lenders stop the rapid readjustment of their rates.
This morning’s lower than expected inflation figure will offer some relief to the Bank of England and interest rates are now forecast to rise less sharply as a result, but given inflation is still well above the 2% target it is unlikely that the BoE can take its foot completely off the pedal. If the BoE opts to push rates higher once again, this could cause significant damage to property prices as affordability is further squeezed.
The housing market remains highly unpredictable, and anyone nearing the end of their current mortgage deal or looking to buy in the short term should therefore seek professional mortgage advice as soon as possible.
Karen Noye is mortgage expert at Quilter
