Amid the backdrop of war in Ukraine and the spiralling cost of living, unpredictability is at the forefront of many people’s lives right now. The outlook for the housing and mortgage markets is no less uncertain.
Taking a step back, however, it is possible to see some current market trends as a return to form following a turbulent two years. What’s really going on with house prices, supply, and mortgage rates?
2021 was a record-breaking year for the housing market. The Stamp Duty holiday and pent-up buyer demand helped push house price growth to its strongest rate in any calendar year since 2006.1
These soaring prices have spilled over into 2022; prices rose by nearly 10% year-on-year in March, according to the Land Registry. Q1 2022 was the fifth busiest quarter since 2007,2 with the average UK property now taking just 33 days to sell – twice as fast as in 2019.3
Supply edges up
There are signs, however, that this frenzied activity might be easing off. Indeed, many experts now expect house price growth to slow for the remainder of the year.
Part of the reason for this is increased supply. The number of new homes listed for sale has increased for the first time in a year (up 8%), the latest Royal Institution for Chartered Surveyors Residential Market Survey revealed, whilst new buyer enquiries rose by 9%. As such, this is the closest that supply has come to meeting demand levels since the pandemic began.
Mortgage rates rise
Things are also changing quickly in the mortgage market. The Bank of England’s decision in May to increase the base rate to 1% – the fourth such rise since December 2021 – has pushed mortgage rates higher.
The current two-year fixed rate average of 2.86% is the highest on records since June 2015.4 Likewise, the five-year equivalent (3.01%) is at its highest point since October 2016. Taken together, this means that the margin between the two-year and five-year rates is the smallest since February 2013.
Analysts are predicting more rises this year prompting many to take action to secure the best deals while they’re still available. For example, remortgage activity rose 24% in April, driven by homeowners locking into fixed rates.5
Another notable trend this year has been the dominance of chain-free transactions. 73% of property buyers so far this year have been chain-free, according to Hamptons, up from 69% last year.
Chain-free transactions tend to complete quicker and are less likely to fall through, which makes them attractive to sellers in a competitive market.
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1Nationwide 2HSBC 3Rightmove 4Moneyfacts 5LMS 6Hamptons
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