Rate rise signals another step closer to normality for the UK property market

Posted on Monday, March 21, 2022

While demand remains at record levels and supply tight, the Bank of England's decision last week to raise the base rate to 0.755 is a step closer to normality for the UK housing market, according to the latest insight from Knight Frank.

The last time the rate was as high was in March 2020, before the pandemic triggered a prolonged stamp duty holiday, a supply squeeze and double-digit house price growth.

Knight Frank suggest that it is premature to say prices will now slow down notably, however, an annual increase of 12.6% recorded by Nationwide in February doesn’t feel like it has a long shelf-life, particularly when you factor in the cost-of-living squeeze.

For now, demand is resilient, as explored last week. Supply is still short in many areas and competitive bidding means properties are frequently selling for over the asking price. Demand is particularly fierce in the capital as the return to the office gathers pace. More analysis on that here.

The same is true in many markets outside of London although the “escape to the country” trend has become less frenetic than during the height of the pandemic.

James Cleland, head of Knight Frank’s country business, comments: “If a good property comes on at a good price, it will sell under competition. However, it’s no secret that there are more headwinds out there and buyers have become slightly more realistic. For owners thinking about bringing their property to the market, it means the next few months represent a window of opportunity while demand remains so high.”

 

In another sign that single-digit house price growth may be on the horizon, borrowers are becoming more prudent because of higher inflation, according to Simon Gammon, head of Knight Frank Finance. Lenders have been withdrawing their best rates in recent weeks, which is increasing borrowing costs, as explored here.

Simon adds: “People are beginning to push themselves less. They are asking how much they can afford to repay per month rather than how much they can borrow overall.”

Banks will become more cautious themselves as higher outgoings feed through into bills, Simon says.

“Some people have started to curb how much they borrow but in six months’ time they may not have that choice.”

This mood of caution chimes with research released today by the Home Builders Federation, which found buyers are increasingly concerned about the energy performance of the property they are buying as a result of spiralling fuel costs.

Tom Bill, head of UK residential research at Knight Frank, concludes: “The pandemic has brought a period of eyebrow-raising house price growth. Supply is tight, demand is ferocious and mortgage rates are low, but the clock is ticking for buyers and sellers.”

Via @PropertyReporter