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Is the UK heading towards a house price crash?

by LLP Finance Reporter
20th Oct 22 4:25 pm

The team at www.onlinemortgageadvisor.co.uk share their insight after considering the current average house prices, if there will be a house price crash, and also analysing both house price and interest rate predictions.

Following a dip in house prices over the summer, property was back on track last month with an increase in the average property price to £367,760 in September 2022 – a 0.7% rise on the month before. The increase is a bounce back for the housing market after August saw its first decline in prices this year, but it’s important to keep in mind that seasonal fluctuations were to be expected, despite the current economic uncertainty.

What’s more, the price growth in September, although predominantly in the middle and high-end sectors, showed that those who can afford it are still actively moving and their reasons for doing so – including having a growing family or needing more space – remain the same. Also, with demand continuing to outstrip supply as it is currently, it’s unlikely that house prices will fall in the short term, at the very least.

However, there have been tentative signs of a slowdown in activity, with the latest Halifax House Price Index revealing house prices dipped 0.1% between June and July, halting 12 consecutive months of price growth. Additionally, affordability constraints will start to have a greater influence on market behaviour – especially if interest rates rise further, which will again directly feed into mortgage rates as well.

Nonetheless, this hasn’t fed through to a significant decline in house price growth just yet, and with the Government recently announcing a stamp duty cut; this may provide some additional support for prospective buyers and ultimately stimulate more demand. From what we’ve seen so far, house prices have remained resilient during the cost-of-living crisis, and we can’t see the property market stabilising anytime soon.

Will house prices crash in 2022?

Recent rises in the UK base interest rate have sparked fears that the market might crash. The fallout from the Government’s recent fiscal event caused many lenders to collectively pull over a thousand deals from the market and even withdraw some offers. Although deals have slowly started to return, they’re at much more expensive rates than before, as the interest rate on a new, average two-year fixed deal instantly rose from 4.74% to 6.06% post-mini-budget.

If interest rates continue to rise as predicted, mortgage offers will only increase in price or be taken off the table altogether, as we’ve seen in recent weeks. What’s more, mortgage payments could become unaffordable for some homeowners, who’ll likely be forced to sell up; if this occurred in large numbers, house prices would start to fall as a result. Even though we’ve seen minimal price drops so far, which the housing market did bounce back from in September, we still suspect a trend sparking where we’ll see house prices starting to level off over the next two years or so.

That being said, a market crash still appears to be way off, especially as demand continues to outstrip supply – it’s unlikely property prices will fall in the short term.

House price and interest rate predictions

High inflation has caused interest rates to rise, and this is set to continue – which will likely slow down the housing market by the end of the year and into 2023. It’s difficult to say how high-interest rates could go but experts are predicting that the Bank of England’s base rate will rise to at least 3% by the end of this year; having a knock-on effect when it comes to interest rates and subsequently, mortgage rates.

According to data provider, Money Facts, today the average two-year and five-year fixed mortgage rates stand at 6.46% and 6.32%; the last time both were higher was in 2008, the year of the financial crash. This doesn’t particularly bode well, with the Bank of England predicting we’ll go into a recession at the end of 2022. Additionally, if this rate climbs even higher in 2023, this could have a significant impact on house-buying activity and possibly drive down price growth – but as already mentioned, this is unlikely to happen in the short term.

Going forwards, onlinemortgageadvisor advises those who are looking to buy to wait, see how the situation develops in the coming weeks and consider your options carefully with the help of a mortgage advisor. Likewise, those looking to remortgage should also discuss their options with an experienced mortgage advisor, but if you can, fix for longer – especially if your current deal has less than six months remaining – to protect yourself from further price rises in the future.

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