The boom in the UK property market may soon be over, especially since experts are predicting that the rising interest rates and cost of living crisis could majorly cause a correction in house prices. Since the market is currently overheated, property prices have increased by over 11% over the course of a year. This obviously makes it very difficult for first-time buyers to get their foot on the property ladder. But will house prices actually drop? Here we dig deeper to find out more.
Why are prices so high?
The average price of UK housing has trebled since the century began, with an increase of over 60% during the last 10 years. The Bank of England has said that record-low interest rates have been the force powering the housing market historically. But a rise in interest rates throughout 2022 could dampen the wildly out-of-control housing market because mortgage repayments will subsequently increase.
The cost-of-living crisis is also likely to cause a slowing in the housing market, especially since fewer people can afford to stretch their funds to buy new homes now.
Is there a higher demand for rural locations?
Since working from home is likely to become a more permanent addition to the lives of many people, demand for properties that reside outside of urban areas such as cities has risen. Lockdowns highlighted the value of space and greenery for many people, triggering a rapid surge in properties in coastal and rural areas.
House prices in some of the largest hotspots have jumped by as much as three times the national rate. These places include:
- Conwy, North Wales
- Northern Devon
- Richmondshire, Yorkshire Dales
House price predictions
Given that there is still a ‘race for space’ among many in the housing market, predictions remain abrasive:
- Hamptons housing price forecasts have predicted a rise of 3.5% year-upon-year between 2022 and 2024.
- Lloyds Banking Group have expected that house prices will maintain their current firm levels over the next year or so, but growth could be much flatter throughout 2022 at approximately 1%.
- The Bank of England have also predicted that the growth in house prices will slow down towards the end of the year, with mortgage providers also expecting to cut down on lending to others as the economy continues to struggle.
- Cluttons, a property consultancy, have suggested that in some areas of London, pricing could fall by as much as 10% in 2023, while estate agency Foxtons have predicted growth of 1% to 3% in London.
Analysis from Capital Economics has predicted that:
- The Bank of England’s base rate will likely peak at around 3% in the second half of next year
- This could, in turn, push average mortgage rates to at least 3.6% (while this is still historically low, it is more than double the 1.6% rate that was recorded towards the end of 2021)
- Based on this data alone, Capital Economics forecasts that house prices will rise throughout 2022, before falling by at least 5% next year.
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