UK House Prices at Record £250,000 But Rate Hikes May Cool Boom

UK house prices have risen to an average of £250,000, up 0.7% in October, according to the Nationwide Building Society.

But with interest rates likely to start pushing higher as soon as tomorrow, when the Bank of England monetary policy committee meets to make its rate decision, prices could begin to cool next year.

That’s the view of the Nationwide Building Society, one of the UK’s largest mortgage providers, which expects that higher rates will squeeze demand in the property market.

The UK mortgage lender reckons annual growth in home prices is largely unchanged at 9.9%.

Headlines	Oct-21	Sep-21
Monthly Index*	497.8	494.6
Monthly Change*	0.7%	0.2%
Annual Change	9.9%	10.0%
Average Price (not seasonally adjusted)	£250,311	£248,742
Source: Nationwide BS. Notes: *Seasonally adjusted figure (note that monthly % changes are revised when seasonal adjustment factors are re-estimated)

Average home costs extra £30k since pandemic began

Prices have increased £30,728 since the start of the pandemic in March 2020.

In October the Stamp Duty cut that had helped to drive the boom in prices was undone but that appears to have done little to tame prices.

However, other elements, such as restrained supply and demands for larger homes outside of city centres as the migration to the countryside gathers pace , are thought to be supporting the continued growth in prices.

With mortgage rates already starting to creep higher, with 5-year fixed rate deals under 1% harder and harder to come by, a rise in interest rates would come against the background of other cost of living increases such as high energy bills, elevated inflation and tax hikes going into 2022.

Consumer confidence is weakening

Robert Gardner, Nationwide’s chief economist, said the picture was shrouded by uncertainty, with the cost of living worries already starting to impact consumer economic behaviour.

“Consumer confidence has weakened in recent months, partly as a result of a sharp increase in the cost of living. Even if wider economic conditions continue to improve, rising interest rates may exert a cooling influence on the market, though the impact on existing borrowers is likely to be modest,” said Gardner.

Fixed-rate mortgages protect most borrowers… for now

The low interest rates of the past decade or so has seen borrowers increasingly opt for fixed rate mortgages, which means that only around 20% of mortgages are on variable rates. The upshot of that is interest rate rises in the near-term will not affect the 80% of borrowers that are on fixed rates.

Nevertheless, the general economic climate could be such that less people will be inclined to make big financial decisions such as buying a new home or moving house.

The Bank of England is expected to raise rates from the current 0.1% to at least 1.0% by mid 2022.

According to Gardner, an increase of 0.4% would lift monthly payments by £28 to £625, while a rise of 0.9% would see monthly payments jump £64 to £660, which would mean mortgage payers would have to find an extra £765 a year.