Mortgage payments are rising after five straight rate hikes by the Bank of England and more hikes are expected in the coming months.
The bank is trying to rein in inflation, which will reach 11 percent this year – the highest in four decades.
Ultra-low interest rates have made mortgage borrowing cheaper and inflated a property bubble that has made home ownership a distant dream for many renters in some parts of the UK.
But with the end of the low interest rate era, will the runaway UK housing market begin to cool down and could we even be headed for a crash?
What is the latest data on UK property prices?
Official figures this week show prices are up 12.4 percent for the year to April. That was a big jump from the 9.7 per cent rise recorded in March, and it means the average selling price has risen by a staggering £31,000 – more than the median UK wage – to £281,000.
For now, buyers seem poised to endure the relatively modest increase in monthly mortgage payments, although official data is yet to reflect recent rate hikes.
All four nations saw large increases in the cost of a home, with average home prices rising to £299,000 (11.9%) in England, £212,000 (16.2%) in Wales, £188,000 (16.2%) in Scotland ) and in the UK, Northern Ireland rose to £165,000 (10.4 percent).
Growth was slowest in London at 7.9 percent, although the capital still owns the UK’s most expensive property.
More recent figures from Halifax show that prices rose sharply in May.
Despite fears over the cost of living and soaring energy bills, house prices rose 1 per cent (around £3,000) compared to April and 10.5 per cent for the year.
The average house price hit £289,099 after the 12th consecutive monthly increase.
Halifax said an ongoing “supply and demand imbalance” for real estate remains the main reason driving prices to new record levels.
A “race for space” that began during the pandemic is likely to continue as people move from apartments in cities to larger houses in more rural areas.
“However, the housing market is showing signs of slowing down,” said Russell Galley, managing director of Halifax Mortgages.
“Activity has started to slow and coupled with the inflationary pressures currently being placed on household budgets, activity is likely to slow.”
However, there are signs that prices may continue to be supported by strong demand. Estate agent Chestertons said it had seen a 31 per cent increase in the number of people signing up for viewings at its London branches.
Chief Executive Guy Gittins said there is now a “strong seller’s market” and the number of suppliers willing to lower their asking prices has fallen 38 percent over the past year.
“The sheer volume of agreed sales in April has created a challenging workload for lawyers and banks, which has impacted the time it takes to complete a sale,” he said.
Rising interest rates will affect some buyers’ ability to buy a home, but the impact may be limited.
How much have mortgage rates increased?
Some lenders have raised their mortgage rates by twice the Bank of England’s base rate.
HSBC hiked fixed-rate mortgage prices by 0.45 to 0.5 percentage point last week, well above the 1/4 percent hike in the base rate. Nationwide also increased rates by as much as 0.4 percentage points.
The Bank of England’s latest move will have an immediate impact on the 1.9 million borrowers who receive standard adjustable-rate mortgages or tracker mortgages, which move in line with the base rate.
On a £200,000 25-year mortgage, that means £700 more in interest payments over two years.
Around 75 per cent of Britain’s 9 million mortgage borrowers are on fixed contracts, according to UK Finance.
Fixed rates are also rising, with the average two-year fixed rate up nearly 1 percent since December 2021.