Over the last two years we have seen house prices soar in a housing market buoyed by the great disparity between the limited supply of housing stock and increased demand from buyers. Larger homes with outdoor space outside of towns and cities have been particularly sought after during this time as homebuyers benefited from lockdown savings, the 2020-2021 stamp duty holiday and low interest rates.
Indeed, according to Nationwide, the average UK house price of £273,751 has increased by nearly 50,000 in the past two years in what has been very much a sellers’ market. Tales of sealed bids, gazumping and vendors upping the price midway through a sale have been commonplace as buyers do anything to secure their dream home in a competitive market.
Is the tide beginning to turn though?
In December 2021, the interest rate rose from 0.1% for the first time since March 2020. Since then, we have seen further increases to reach the current rate of 1.75% (as of August 2022) as the Bank of England attempts to curb rising inflation now we have hit a significant cost of living crisis.
Energy price rises and supply chain issues had already begun to have an impact on the costs of goods and services as we entered 2022 and inflation had risen to a 30 year high before Russia invaded Ukraine in February 2022. This on-going conflict has exacerbated the price of oil and gas and key supplies such as wheat, maize, and sunflower oil. The rate of inflation is now at 10.1% – a 40 year high – with expectations of a rise upwards of 18% in 2023. Consequently, the interest rate is expected to rise to around 3% by the end of 2022.
This interest rate increase is having a knock-on effect on borrowing, making monthly repayments higher and the overall amount we must repay much larger. For most of us, our main outgoing when it comes to borrowing is, of course, the mortgage loan we repay for our homes.
So, if you are thinking about buying a house in the near future, is it time to play hardball on your offer?
Whilst house price growth has remained buoyant, Nationwide has reported a drop in growth of 1% from 11% year on year growth in July 2022 to 10% in August 2022, citing buyer reticence as a result of concerns about the rising costs of living.
Potential homebuyers are worried about a steep increase in their energy bills when Ofgem’s revised energy price cap – an exorbitant 80% increase – comes into effect on 1 October 2022. Mortgage lenders are also becoming more cautious as affordability becomes an issue and expectations of a house price crash are being suggested. As a result, we are definitely seeing activity start to fall in the housing market, with successful mortgage applications having dropped to pre-pandemic numbers and surveyors also seeing a drop in new enquiries in the past few months.
Buyers are also starting to have concerns about retaining value in their property, with the worry that purchasing now when house prices may have peaked could mean their home is worth less than they paid for it in 6- or 12-months’ time.
Consequently, we are also seeing a decline in the number of offers exceeding asking price and more tales of down valuations from mortgage lenders or buyers trying to renegotiate the sale price prior to exchanging contracts.
Whilst many potential homebuyers have decided to press pause on a new purchase to see which way the housing market is headed, if you need to move house imminently, how do you decide on an offer price?
First and foremost, you should always consider affordability. Do your sums and make sure you can afford your mortgage repayments with both current and worst-case scenario interest rates. You should also do your homework when it comes to the house in question. Always get a survey so there are no nasty (and expensive!) surprises down the line when it comes to maintaining the property. Make sure you have researched the local area as well, so you know that the price you are paying is representative of local house prices and are knowledgeable about any upcoming developments which could have an impact on the price of your property in future.
Fundamentally, house prices, much like the wider economy, go through peaks and troughs over time, so always make sure that the property you plan to purchase has the potential to be a long-term home so you aren’t forced to move in future at a time when you may lose out financially.