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Many analysts expected that the property market would finally crumble as the UK economy slipped into recession. Property is expensive, but prices have refused to fall despite this year’s cost of living crisis.
Reports of the death of the housing market may now prove exaggerated, but this could also spell bad news for first-time buyers.
Those who were hoping that prices would slip back and become more affordable for younger people may now face disappointment.
If the property market does survive the current wave of troubles, then it will be hard to see when it will crash.
However, it will be good news for the wider economy if a crash is averted, as this will help maintain confidence.
UK house prices have soared due to more than 13 years of near-zero interest rates, dating back to March 2009.
They rose by another 11.5 percent over the last year to £294,260, according to the latest Halifax house price index.
Prices even increased in August by 0.4 per cent, despite the war in Ukraine, Tory leadership uncertainty and cost of living crisis.
However, Halifax also found evidence of a slowdown, and many assumed the house price party would wind down as mortgage rates climb.
The Bank of England has repeatedly hikes interest rates to curb inflation and this is driving up borrowing costs.
The average two-year fixed rate mortgage now charges 4.24 per cent, almost double the 2.24 per cent average just two years ago, latest Moneyfacts figures show.
This has left many homeowners on variable rates paying £880 a year more to service their mortgage.
Most analysts expect the BoE to hike bank rate again at its next monetary policy committee meeting on September 22, lifting it from today’s 1.75 percent to 2.50 percent.
READ MORE: Estate agents ‘tricks’ to ‘be aware’ of when buying and selling a home
Inflation has rocketed this year but today’s figures shows consumer price growth figure dipped slightly to 9.9 percent in August.
That may offer only temporary respite but there is another reason why inflation may fall. The two-year energy price freeze, announced last week by Prime Minister Liz Truss, is expected to cut next year’s inflation rate by as much as four or five percent.
That would reduce the pressure on the BoE to keep increasing base rates.
There was another piece of positive economic news yesterday, with wages rising faster than expected while unemployment has fallen to its lowest level since 1974. It stood at just 3.6 percent in July.
If cash-strapped homeowners keep their jobs, or can find news ones, this will reduce the number of forced property sales due to unemployment.
There is one final factor supporting prices. The UK cannot build homes fast enough to keep up with its rocketing population.
While property is in such short supply, continuing high demand will keep prices from crashing.
For better or worse.
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