Surging demand in the property market has continued to encourage house prices to soar throughout the beginning of this year. In July 2022, the average price of a house entering the market reached £369,968, rising by 0.4%, which is equal to an increase of £1,354.
However, Rightmove has stated that they are expecting demand to “drop to ‘more normal’ levels” throughout the remainder of 2022 due to the rising cost of living and hiking interest rates increasing unaffordability.
Housing prices have remained strong since the introduction of Chancellor Rishi Sunak’s Stamp Duty Holiday, which was introduced to prevent the housing market from collapsing during lockdown.
Since then, the price of buying a house has continued to increase, rising by 13%, which is the fastest annual rate in 18 years in June 2022. However, the rising house prices alongside the cost-of-living crisis is making buying a property less and less affordable, which could result in fewer people being able to buy.
Demand is expected to fall in line with the rising cost of living, caused by increased interest rates and inflation. Since December 2021, the Bank of England has raised interest rates five times in a row to 1.25%, with inflation reaching 9.1% in May.
Lloyds Banking Group has also explained that “housing affordability is at its most stretched”. The average house price has increased by 16.8% since the start of the pandemic, with the average property costing 7.1 times more than the average salary.
As a result, it is becoming less affordable for people to buy a property, resulting in fewer people looking to buy. As Tim Bannister, Rightmove’s Director of PropertyScience explains:
“The challenges presented by rising interest rates and the cost of living will no doubt have an effect throughout the second half of the year, as some people reconsider that they can afford.”
With inflation expected to reach double figures by the end of 2022 and interest rates expected to increase again, experts are predicting a slowing of demand in the market.
According to Robert Gardener, Nationwide’s chief economist:
“The market is expected to slow further as pressure on household finances intensifies in the coming quarters, with [consumer price] inflation expected to reach double digits towards the end of the year.
“Moreover, the Bank of England is widely expected to raise interest rates further, which will also exert a cooling impact on the market if this feeds through to mortgage rates.”
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