Crystallising Gains and Looming Interest Spikes

Hello again friends of EO. Following a restful period of bank holidays in close succession, the Monthly Market Update makes its return. This May, we have figures that begin to support the trends that were predicted back at the end of 2021. And yet, some aspects of the market have stayed very much the same. 

First things first, as it has since the beginning of our market updates, house price growth continues to trend upwards. While having peaked at a +8.8% increase at some point in February, the current positive growth is +8.3%. Only 0.2% higher than last time around, but the fact the growth has continued at all has surprised those that expected growth to slow down to +3% by the end of the year. That figure now seems unlikely, even with incoming economic headwinds looming. Price growth would have to fall far too linearly for that to be feasible. 

This 8.3% figure is of course the current national average, the London price growth average has been consistently floating around +3% already (currently it is 3.4%). 

This growth is once again supported by enduring buyer demand, which is 58% higher than the five-year average. This has led to sales agreed on the run-up to Easter to be 27% higher than the average as well. Predictably, buyer demand is currently keeping up market momentum. 

First Time Buyers, Growth And Affordability 

These factors mean house price growth is at a 15-year high. But the same can be said for other statistics in the post-pandemic world, chiefly: inflation. Inflation hit 7% in March 2022. Comparing the two figures, the national price growth does edge out inflation by a small but significant margin, but in London, house price growth sits almost 4% below. 

Raising interest rates is a classic strategy by banks to try and rein in inflation. But raising interest rates will also inevitably impact buyer demand. It has already fallen from 65% higher than the average to 58% since our last market update. 

Higher interest rates affect monthly repayments which impact affordability. For first time buyers, affordability has already seen major changes. The pandemic is said to have driven property prices up on average by £29,000. This has pushed millions of properties into a price threshold where stamp duty can be incurred. 

Overall, this means the average first-time buyer will need an extra ‘£4,000 for a 15% deposit, and an additional £5,000 in added income every year to meet the criteria of a home loan which is within the 4.5 x income threshold’ (Zoopla March 2022 index). Accounting for increases in the cost of living on top of this, it is easy to see why buyer demand is expected to begin dipping considerably in the second half of the year. 

And so, homeowners are now faced with the option of crystalizing their pandemic gains in house prices while demand remains high. 

But as always, statistics can only say so much, if you’d to discuss your property plans in detail, contact us HERE. 

Luiz De Souza | Administrator