Double-digit house price growth

High demand and low supply in the housing market

If you want to buy a home now, there is no denying that buying a property is more expensive than pre-pandemic. Mortgage rates are still relatively low, despite the Bank of England increasing the base rate of interest in March for the third consecutive time since December in order to get a handle on soaring inflation.

As time goes on, rising rates could impact the housing market by making it more expensive to borrow money and more difficult to find a cheaper mortgage deal. Recent data[1] has provided an insight into how the cocktail of double-digit house price growth, rising interest rates, the escalating cost of living and the Russian invasion of Ukraine is impacting consumers.

Barrier to buying a property

The data reveals that just 18% of people think now is a good time to buy a property. It also highlights that almost half of people (48%) say affordability of monthly mortgage repayments is a barrier to buying a property, a significant increase from 39% just three months ago.

Consumers have been experiencing price rises for some time. However, many are aware that there is more pressure to come due to the energy price cap increase in April and higher National Insurance payments that came into effect at the same time.

Cost of living has increased

It’s therefore not surprising that 65% said they are worried about the rising price of goods and services over the next six months and many are taking action. Nearly half (48%) said they will cut their energy use and the same proportion (48%) say they will spend less on purchases they consider non-essential because their cost of living has increased.

A third of people (33%) say they will be spending less on essential purchases, such as food. And of those trying to buy their first home, one in three (30%) say they will work more hours or find a new job over the next six months because their cost of living has increased.

Mortgage payments

But it’s encouraging that the majority of those with an existing mortgage (90%) say they are confident they will be able to meet their regular mortgage payments over the next six months. This is probably due to 81% of all UK mortgages being on a fixed rate[2] and therefore protected, for a period, from rising interest rates.

It’s a different story for those trying to get a foot on the housing ladder, with mortgage payments as a share of take-home pay higher now than the long-run average[3], despite relatively low mortgage interest rates. Raising a deposit continues to be the biggest barrier to buying a home, with 59% citing this – an increase from 55% in December.

House prices

The increase in the number of people citing mortgage affordability as a barrier to buying a home is likely to continue if there is continued high demand and low supply in the housing market. Price growth at the current pace is clearly unsustainable and a much higher volume of new build and resale homes coming to market is needed to change this dynamic. Whilst lenders expect some flattening of new mortgage demand as the year progresses, the re-mortgage market is anticipated to  remain buoyant.

As we all experience the impact of the rising cost of living, and watch how the Russian invasion of Ukraine and the consequent sanctions are affecting energy prices, it’s not surprising that many are feeling worried about making their budgets stretch and are considering changes they can make.

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Source data:

[1] Property Tracker Report from the Building Societies Association (BSA) survey. Fieldwork was undertaken between 3–4 March 2022. Total sample size was 2,271 adults. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+). All figures, unless otherwise stated, are from YouGov Plc.

[2] https://www.bankofengland.co.uk/statistics/mortgage-lenders-and-administrators/2021/2021-q4

[3] https://www.nationwidehousepriceindex.co.uk/reports/house-price-growth-makes-a-strong-start-to-2022