Covid could not cool house prices, but economic cooling could | housing market

Every economic indicator in Britain started flashing red, but the housing market marched on relentlessly.

The Nationwide Building Society will release its latest house price index for June this week, along with regional data for the second quarter, while the latest mortgage figures from the Bank of England are also expected to shed more light on the state of the market. British real estate. Prices have risen 5% this year, although uncertainty about the wider economy has meant Nationwide has not released annual house price forecasts.

Few would have expected such buoyant conditions when estate agents closed and homebuilders downed tools at the start of the Covid pandemic.

But demand remained strong due to the stamp duty holiday, quickly introduced by Rishi Sunak to support the market after it reopened, and a desire for more space and a greener environment, as many employees office shifted to working from home. Even the end of the stamp duty holiday last summer and the rise of the highly contagious variant of Omicron failed to stifle rising prices.

The frenzy in the housing market is partly caused by a lack of available properties, which means that many newly listed homes are sold within a week or two. Mortgage rates have been low and the labor market has been surprisingly strong: unemployment, at 3.8% in April, remains among the lowest levels since the 1970s.

Nationwide actually recorded a slowdown in annual house price growth to 11.2% in May from 12.1% in April, but this was due to base effects, and the monthly gain was strong at 0.9 % – the 10th straight monthly increase, Nationwide Chief Economist Robert Gardner noted.

The key question is how long the market can stay sheltered from the cost of living crisis, with UK inflation hitting a new 40-year high of 9.1% in May and five hikes recent rates from the Bank of England. Gardner says there are only tentative signs of a market slowdown, though like other experts, he expects it to cool in the coming months amid the economic downturn. UK mortgage approvals fell to 66,000 in April from 69,500 in March, and net borrowing of mortgage debt fell to £4.1bn from £6.4bn; both measures were slightly lower than pre-pandemic averages.

But analysts point to the resilience of the job market, a continued shortage of properties and mortgage rates that are still cheap by historical standards.

“I didn’t expect house prices to rise when the UK government shut down the housing market: I thought house prices would be stable at best,” says Anthony Codling, independent analyst housing and founder of the real estate website Twindig. “UK property prices have hit new highs and many are hoping this is not a case of what goes up has to come down.”

Real estate company Knight Frank is optimistic: it has just raised its forecast for house price growth from 5% this year to 8%, just below the 10% recorded last year.

The impact of rate hikes on existing mortgage holders should be limited, as more than 80% of them are on fixed rate transactions. In 2007, at the start of the global financial crisis, approximately 45% of mortgage balances were variable rate, and this number rose to 65% in 2013. A typical mortgage payment is 31% of net salary, just over above the long-term average of 29%, although still well below the highs of 45% reached just before the financial crisis.

But Gardner said a 10% down payment on a typical home for a first-time buyer equals 56% of average annual income.

Meanwhile, life seems harder for renters than for landlords. The Center for Economics and Business Research says agreed rents for new contracts rose 10.6% in the year to May, with those in London rising the fastest, at 15.7%.

The housing market seemed immune to Covid shocks. This week should indicate whether the cost of living crisis can derail it.

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