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Your February market update

Interest rates are up — again — and there were record highs — again — but how will the rising cost of living affect the market? We've got it all in your monthly market update.

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February has proved to be another dramatic month in the property headlines — but how much of it will really affect buyers and sellers? With February kicking off with the Bank of England’s announcement about a rise in interest rates, mortgages going up and the housing market reaching a record high, it’s clear that this year’s property news shows no signs of cooling off any time soon. But don’t worry, we’re here to update you on all the latest news and to break down what it actually means for you.

Rising interest rates – again

This February, the Bank of England announced that interest rates are due to increase – again. This time they were hiked from 0.25% to 0.5%. The announcement quickly follows a similar statement made by the Bank in December 2021, and it’s the first time that the Bank has increased interest rates back to back since June 2004.

Why? Well, the rise is an attempt to combat soaring inflation which is at its highest rate for 30 years. But what does all this mean for those of us with mortgages? Or trying to get them?

Put simply it means that those of us with a variable mortgage are likely to find that our monthly mortgage payments have gone up. If this is you, you’re not alone — it’s estimated that around 2 million other borrowers on variable rate deals are in the same boat.

According to calculations from the trade association UK Finance, the rate increase could add around £26 per month onto a typical tracker customer’s repayments. This figure is set to go up even more dramatically if the base rate increases again — and there’s already speculation that this might happen by the end of 2022. This comes as difficult news for lots of us who are already dealing with the rising costs of food and energy. 

And what does all this mean for the housing market? Sir John Cunliffe, the Bank of England’s deputy governor, has said that there is a chance that the rise in interest rates might mean that house prices fall from between 2% to 11%. But it’s not all bad news, and many other experts are optimistic that the housing market can weather the storm – especially at a time when the demand for housing outweighs the supply.

However, with the continued high demand for properties and a reduced number of houses on the market – there is still a chance that the housing market may remain buoyant."

Housing prices reach a record high – but for how long?

Have we finally reached the top of the housing peak? Well, some experts seem to think we have. 

The beginning of February has seen the average price of a UK home reach £277,000 – a record high. Halifax, who provide the leading index on house prices, have announced a near 10% increase in housing prices over the last year. Across the board, housing prices have risen by £24,500 in comparison with this time last year, and £37,500 higher than this time two years ago. 

However, there are early signs that things may be starting to cool in the housing market. While overall this year has seen huge increases in house prices, if we focus on the month by month increase then the figures look a little different. Over the last few months prices have risen by a fairly consistent 1% per month, yet in January prices rose by just 0.3% – the  smallest increase since June 2021. Could this be a sign of things to come? We’ll have to wait and see. 

As we said, rising costs of living, coupled with rising interest rates, may well be the reason behind this cooling. Russell Galley, the managing direct at Halifax, believes these are all important factors:

“This situation is expected to become more acute in the short term as household budgets face even greater pressure from an increase in the cost of living and rising interest rates begin to feed through to mortgage rates…Despite record levels of first-time buyers stepping on to the ladder last year, younger generations still face significant barriers to homeownership as deposit requirements remain challenging.”

However, with the continued high demand for properties coupled with a reduced number of houses on the market – there is still a chance that the housing market may remain buoyant. 

As Karen Noye, the mortgage specialist for wealth management firm Quilter, explained that “while a slowdown in the medium term is likely, a huge drop in property prices is probably not on the cards unless something completely unforeseen happens.”

If the last few years have taught us anything about the housing market, it’s that things are never predictable. While we don’t know what will happen next, it seems that the next few months will be very telling — one way or another. We’ll keep you updated as things develop — and we’ll be back next month with another update.