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 House Prices - Market Factors
We've reported consistently for the last 2 years on how the UK housing market is managing to sustain consistent growth.
Of course there have been regional variations with London and the Sout East experiencing a slowdown in growth at one point, but even that period seems to be behind us and growth in house prices continues across most of the country.
Last month various sources reported that the average house price in every town across the UK was now above £100,000.
But two factors are now making some people predict a change is on the horizon. Four increases in the base rate of interest within the last year have pushed rates up to 5.5%, making mortgages more expensive. A further fly in the ointment is the introduction of Home Imformation Packs (HIPS) next month, which add a further £300 to the cost of selling a home. Sellers will obviously want to pass this cost on if they can, forcing prices even higher. If HIPS actually put some people off from selling their home then demand could be affected, again forcing prices up.
But are we already close the ceiling in terms of prices. Already around half of home sales are not to owner/occupiers, with second homes and buy-to-let properties making up a substantial share of the market.
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Buy to Let - a risky game now?
As we've said elsewhere on this page, buy-to-let property purchases already make up a substantial part of the housing market. But if interest rates continue to rise, then owning a buy-to-let portfolio becomes less attractive and many potential buyers could hold off on further purchases until interest rates stabilise.
If rates do increase then some buy-to-let portfolio owners may be forced to sell some of their properties causing a glut of available properties, with a knock on effect on prices.
Already people are having to borrow high income multiples to afford the home they want or need and the changing of interest rates has a significant affect on the property landscape.
Finally consider the people who have taken advantage of rising prices over the years and instead of moving home have taken out larger loans or mortgages using the equity in their property to fund home improvements or other purchases. This may have seemed an obvious way of raising cash when interest rates were low, but with rates on the rise, the cost of that extra cash may be starting to come home to roost.
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