The Bank of England (BoE) today raised interest rates by 0.5% to 2.25%, the highest levels since 2008. In addition to this, the government is likely to cut stamp duty in an announcement tomorrow, in another shake-up to the housing market. In a decade defined by soaring inflation and an energy squeeze set to send two-thirds of households into fuel poverty, Britain’s housing market has continued to defy all odds. Despite consecutive interest rate rises this year pushing up mortgage prices, house prices have continued to break records, with the average home now costing £256,900, marking a £19,800 (8.3%) increase in the past 12 months alone. Additional research from Zoopla shows that the average first-time buyer property has shot up by £33,000 – to £269,000 – in the same period, meaning that for homeowners and prospective homebuyers, things are set to become even more challenging.

Amidst a cacophony of changes within the market, property technology company, iPlace Global, has unveiled proprietary research into the direction of the housing market for the next year, given the current economic conditions.

Key stats:

  • 16% of homeowners are looking to sell their home in the next year
  • 22% of homeowners have looked into changing mortgage deals simply because they can’t keep up with payments
  • 25% of homeowners have stated the need to adjust their current mortgage deal, but don’t know how

Research from iPlace Global found that a staggering 16% of homeowners are looking to sell their home in the next year as they seek to take advantage of inflated prices. Currently, around 14.1 million Brits are homeowners – meaning that 2.3 million people could be looking to sell their property to capitalise on the current conditions of the market. The total value of British homes is worth £9.2 trillion – soaring by £1.6 trillion in the past five years – which is four times the UK’s total economic output and more than four times the value of the entire FTSE 100, according to Zoopla. In a move that could give the property market a much-needed boost, iPlace Global’s study indicates that if 16% of homeowners sell off in the next six months, it could result in over £590 billion of capital being released into the housing arena. Not only could this unlock significant fiscal-flow, providing a much-needed springboard for Britain’s current economic slump, it could also help alleviate the current pressures in demand, delivering a boost in stock levels for those looking to get onto the property ladder.

Alongside this, the property technology company’s landmark study indicates that some regions are likely to experience a higher percentage of sales in coming months, with Brighton holding the highest percentage of homeowners looking to sell their home in the next year (25%), closely followed behind by those in Birmingham (22%), London (21%), Liverpool (21%), and Oxford (20%).

However, there is also a large portion of the population that is struggling amidst the current housing market boom – having to adapt to the changing pace of the market, especially as interest rates continue to rise in an attempt to combat rising inflation – which is projected to hit 14% by the end of the year. iPlace Global’s study found that 22% of homeowners have looked into changing mortgage deals simply because they can’t keep up with payments anymore, while a quarter have stated the need adjust their current mortgage deal, but don’t know how. Various mortgage lenders across the nation are subsequently now being forced to provide buyers with longer-term plans to keep up with rising borrowing costs. This is likely to have a knock-on effect on the housing market and could result in a slower pace of growth or even drop in property prices over the next year.

First-time buyers are likely to be the most affected by rising interest rates, and experts have warned that they could peak at 2.5% by the end of 2022. Despite this, they continue to act as the biggest driving force in the housing market, accounting for 177,000 or 35% of all property transactions in the UK. However, soaring interest rates could put the brakes on this with the average monthly mortgage payment up by 20% (£163) since the start of the year – now at £976. Now, Zoopla has warned that first-time buyers on lower incomes, homeowners looking to trade up on their current home, and buyers specifically in the south east of England and London, could feel the greatest impact in terms of affordability.

Simon Bath, CEO of iPlace Global, explains where the housing market is heading and what this means for prospective home-buyers: “The central bank’s recent rate rise will have a significant effect on the property market. It’s clear that those stuck in generation rent are likely to be the most affected by the current housing market conditions, especially as property and mortgage prices continue to soar. Many of these people will be looking to purchase their first home, and although the market could see a slowdown towards the end of the year as demand continues to wean and stock numbers slowly begin to recover, their chances have continued to dwindle due to high competition and rising mortgage prices.

“At the other end of the scale, there are homeowners across the country who have taken notice of the changing landscape, and intend to use this opportunity to sell and capitalise on peak prices. This may include people who are looking to downsize and therefore be more comfortable with their mortgage repayments and wider cost of living issues.

“The government must ensure that support is given to all ends of the spectrum – from those looking to buy their first home, to those struggling with mortgage repayments. New schemes must be introduced to replace old ones like Help to Buy, especially for those who can’t afford the opportunity to step onto the ladder.”

Adrian Anderson, Director of property finance specialists, Anderson Harris on the just announced interest rate rise also commented “The Bank of England have increased UK interest rates to 2.25%, this is a 50 basis points hike and takes borrowing costs to their highest levels since November 2008.

The Bank’s monetary policy committee were split 5-4 on the rate hike.  Experts are anticipating more large rate hikes later in the year and into 2023 which is going to heap misery on mortgage payers and have a severe impact on households’ disposable income. 

The message to mortgage borrowers is very simple – don’t wait, take action now as its likely the situation will get worse in the short term.  Borrowers are actively shopping around and seeking to fix their mortgage payments now before the monthly mortgage pain gets even worse.  

This is a huge reality check. The landscape has changed quickly, we are no longer living in a period of ultra-low interest rates with plenty of disposable income; our outgoings are increasing faster than our income and we are going to have to adjust quickly and get used to the new norm.

Further comments from experts below:

Paresh Raja, CEO, Market Financial Solutions

“The property market is being pulled strongly in two different directions. Today’s interest rate hike is significant, impacting both prospective homebuyers along with existing mortgage customers; this threatens to act as a bucket of cold water on what remains a red-hot market.

“But then, the strong rumours of a stamp duty cut in tomorrow’s mini budget will spin matters in another direction. Coupled with the decision to scrap affordability tests, it is clear that the Government will do all it can to fuel a lucrative, buoyant property market.

“We saw it with the stamp duty holiday during the pandemic – when backed into a corner, the Conservative Government is keen to err on being pro-property. It will be fascinating to watch how rising interest rates and high inflation play off against the touted stamp duty cut. I suspect, as recent years have shown, the property market will continue to thrive in the face of significant demand and limited supply.”

Jatin Ondhia, CEO, Shojin

“The jumps in interest rates keep getting bigger, which will naturally cause a stir across financial markets. It’s clear the Bank of England is fighting inflation six ways to Sunday – it is unlikely to remove its foot from the economic brake pedal for the foreseeable future. So, even though we have grown somewhat accustomed to it, the turbulence of rising rates and inflation will spook some investors.

“When it comes to navigating the testing climate, agility and diversification will be particularly important. This is no time for knee-jerk decisions, yet at the same time, a laissez faire approach could leave investors over-exposed to the current macroeconomic headwinds. Investors must have the foresight to evaluate their strategies against the complex dynamics at play and consider which assets are likely to offer the best shelter.

“Against the current backdrop, it should be expected that many investors will look to balance traditional and alternative investments. Real estate could prove particularly popular if indeed the Chancellor does announce a stamp duty cut in tomorrow’s mini-Budget. Bricks and mortar always attracts significant demand from domestic and international investors, but I would predict this demand will rise notably if tax incentives are introduced.”

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