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What is happening in the housing market?

by John Saunders
24th Nov 22 2:39 pm

The property market is a key cornerstone of the UK economy, and one of the markets with which the most people engage as investors – whether indirectly through homeownership, or directly as a vessel for long-term savings. The market has seen rapid and unusual growth in recent years, as a variety of different factors coalesced to create the perfect environment for a seller’s market.

But the landscape has changed in recent months, as government turmoil begat economic turmoil and unprecedented Bank of England intervention. Today, the future of the housing market is much less clear – but what exactly is happening, and how should it affect your own decisions with regard to property investment?

Mortgage rises and falling values

After a period of significant rises in property values, fuelled by a combination of high demand and the government’s temporary suspension of Stamp Duty in 2020-21, the market seems to be performing something of an about turn. During Liz Truss’ brief tenure as Prime Minister, she oversaw the announcement of a disastrous economic policy package which had catastrophic impacts on the UK’s economy.

The package was inflationary in nature and operating in opposition to the Bank of England’s own efforts to curb the rate of inflation with interest rate rises. The response to the policy announcement was enough to spook the markets and force the Bank of England’s hand in raising interest rates significantly higher.

This, in turn, caused mortgage rates to skyrocket. This mortgage rate rise is expected to herald a housing ‘crash’ of sorts, with property values expected to fall by nearly 10% over the next two years.

Demand remains high

But despite the unpredictable movements of the market, and the prospective fall in house prices resulting from mortgage rate rises, demand remains considerably high for housing – both on the market and in rental markets. This high demand is one of the main factors that drives the overarching trend of property value growth, alongside wider variables in the form of build rates.

As such, property investment remains a worthwhile endeavour in the long-term – particularly if you are intending to enter the rental market with your next property purchase. With the property ladder even harder for first-time buyers to access, the number of renters will continue to grow, representing shrewd investment opportunities for those who have the capital to take on a buy-to-let mortgage.

A good time to buy?

But is it a good time to buy property now? As indicated above, the property market is not easy to read at the present moment; there is little use in attempting to predict the movements of the property market beyond the two-year projections shared by the OBR. But it is highly likely that any house price falls will be offset in the long term by overall growth. Simply put, there is never a ‘good’ time to buy, and any investment decisions should come from within as much as from market reading.

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