UK housing market is "on fire" - May 2021

Is now a prime time to move home or buy a second property?

Bank of England's chief economist warns that the UK housing market is “on fire”.

House prices in the UK jumped another 9.5% in the year up to May, with large banks such as Halifax reporting the average selling price of properties within the UK rising by £22,000 year on year in May as the stamp duty deadline approaches.

Why are prices still increasing?

UK house prices could continue to rise after the end of June even with the gradual phasing out of the stamp duty holiday. This is likely due to the increase in savings that Britons have built up over the lockdown which inevitably cut down their travel and socialising expenses. Due to this people are having bigger deposits which can be used to fund larger properties which have the more desirable larger gardens and home offices- another shift in buying preferences caused by the pandemic.

Is there a price crash coming?

Some experts predict that house prices and mortgage application numbers will decrease after the final stamp duty deadline at the end of September. This could mean that from October onwards we could see a fall in house prices.

However, it has been argued that the stamp duty holiday will not have encouraged individuals to move house who were not already considering the decision in the first place. It is possible that the housing boom could continue as lockdown spurred a preference towards larger properties with more outside space and home offices.

In addition, the reintroduction of 95% mortgages and the new Government Help to Buy scheme has encouraged first time buyers to get on to the property ladder helping to boost the demand. To find out more read our 95% mortgages blog.

Similarly, the housing price increase has reflected in the places that people are preferring to purchase in since the start of the pandemic. As discussed, people are looking for different features in properties now, features that are more available and affordable outside of cities such as London.  This can be seen from housing price increases by location, for example Greater London has seen an annual increase of 3.1% whereas more rural areas such as the South West has seen an annual increase of 8.6%.

Is it a good time to buy?

Some people think that holding off for a housing price crash could result in being able to grab a bargain however there is no guarantee that housing prices will fall.

There is the possibility that holding off for a decrease in housing prices would give you the opportunity to purchase a higher value property than before which could then increase in value again. If this were to happen you could resell the property for a profit or remortgage to raise funds for a new project such as renovations or a deposit for another property. It is important to remember however that there is no guarantee that houses prices will decrease anytime soon, let alone inflate back to current rates in the future.

The overall trend is that house prices have risen faster than salaries have increased meaning that the housing market is becoming increasingly unaffordable which long term is not likely to be sustainable. According to the Office for National Statistics, over the last 20 years house prices have increased by an average of 5% each year, wages on the other hand have risen less than 3% a year creating a clear imbalance. This could mean that waiting for a price drop could end up being more expensive in the long run.

On the other hand interest rates are currently at a record low, which means that borrowing is cheaper than before. However, as they are so low there is the high chance at some point in the not too distant future they will likely increase again. Therefore, it is important to factor in the possibility that these could increase resulting in higher mortgage repayments in the future.

As discussed, there are many factors to consider when decided whether to buy a house now or wait to see if prices will decrease in the future.

If you are considering buying your first property, moving house or purchasing a buy to let speak with one of our advisors today to assess your options.