A Look At The Housing Market

The housing market in the UK has been in turmoil throughout the couple of last months. The prices are falling and yet they are still high as they increased by 60% over the last decade and rose to the highest in May. In other words, the UK property market is undergoing tremendous stress.

In May the mortgage lending dipped below the lowest level on record. The average price of properties hit the record of almost £373,000 which is 1,5% more than last year. Many households looking to set foot on the property market are expecting 5%-plus fixed-rate deals within the next few weeks. And still mortgage managers doubt that there will be two-year-fixed-rate mortgages since the majority of lenders are looking to reprice their deals. The 5% mortgage rates will eventually turn out to be a blow to first-time buyers and those families looking to remortgage their deals.

The inflation figures of 8,7% in April resulted in the base interest rates at 4,5% and a 13th interest rate rise. High mortgage rates turned buying a new house into pain and brought the housing market to a halt and prices falling a couple of months in a row. Many buy-to-let lenders pulled their deals from the market before repricing them. The further rate increase that is expected this year can also seriously slow down the market.

First-time buyers will probably hold off their deals to see what is going to happen which could also impact the market. However, specialists recommend that they get their applications under way and prepare themselves for rates above 5%.

As a result, house prices are not just slowing down, but in fact they are reversing because of the rising interest rates and the cost of living itself. The statistics from the Bank of England show that borrowing figures have declined drastically to zero level in March and hit the record of 1993.

April is traditionally the month when the demand in the property market picks up, but not this year. The former availability of ultra-low rates resulted in soaring housing prices and affordability for new buyers going down. This inevitable slowdown coincided with the rates rise bringing the property market to a halt. The cost of living crisis and a slowdown in the economy are just adding up to the pressure on the property market. Though the prices rose by 0,5% in April for the first time over the previous seven months.

Most likely the Banks will ramp up their rates even further by the end of the year in response to high inflation. The interest rates may be driven above 5,5% by the end of the year. This sparks fear that the housing market might eventually crash. However, the demand is constantly high and that might cushion the blow suggesting that the market might rather fall than eventually crash.