How much longer can house prices continue to rise?’ Whether you’re a first-time buyer
desperately trying to gain a foothold on the ladder, a longtime homeowner thinking of selling up,
or just a conveyancer, it’s the question on everyone’s mind.
House prices just keep on growing. New data from Halifax reveals February saw the fastest
growth in prices since June 2007 – an era that feels very distant in so many ways. Meanwhile,
according to data from Rightmove, the average cost of a house in the UK now stands at
£354,654, the first time it’s ever exceeded £350,000.
So it’s clear that records are being broken and ceilings smashed month on month. But what’s
behind the precipitous rise? And, perhaps more importantly, what could end it?
What’s Driving the Rise?
There are several interweaving factors contributing to soaring prices. And, depending on which
expert you ask, you’re likely to get a different answer as to which is the most important. So, let’s
take each in turn, starting with the simplest.
First up, large swathes of the UK property market (particularly in London and the South East)
are simply overvalued. S & P Global Ratings, the US credit rating agency, believes that property
in London is overvalued by 50%, while property outside the capital costs 20% more than it
It puts this down to a combination of ‘low-interest rates, the stamp duty holiday and excess
savings amid the pandemic’ driving up prices. And, while these are certainly all factors, there’s
more to it.
The COVID-19 pandemic also boosted the desire for larger and rural homes, the so-called ‘race
for space’. With many people working remotely, most of the time, buying property in Britain’s
major cities has lost some of its allure. Indeed, asking prices for four-bedroom homes and those
in rural areas have shot up.
However, at the same time, prices in cities like London have continued to escalate. And that’s
because, as legal restrictions have lifted, and some businesses encourage a return to the office
for at least some of the week, another group of buyers is moving back in (or at least within
commuting distance).
Finally, there’s a major mismatch between supply and demand. So much so, that Rightmove
estimates there is currently double the number of would-be buyers as there are sellers. Anyone
looking to sell at the moment would find a market in which the chance of finding a buyer in the
first week of putting a property on the market is the highest it’s ever been. And, with such
frenzied demand, comes frenzied prices.
What Could End It?
We’ve tackled some potential reasons why the UK property market is running so hot, now let’s
look at what could cool things down.
If you’ve paid any attention to the news lately, you’ll know that UK inflation is currently running at
its highest rate for a decade and is unlikely to get better anytime soon. The IMF predicts that the
UK will have the worst inflation in the G7 by the end of 2023.
In response, the Bank of England (BoE) has become increasingly hawkish, hiking up borrowing
costs to try and get things under control. Ordinarily, a sharp increase in the interest rate would
be expected to take the steam out of the housing market and prices would fall accordingly. After
all, that’s what happened in the early nineties.
However, the old link between housing prices and inflation appears to have been weakened.
There’s been little sign so far of any impact on demand for property. And, lest we forget, the UK
housing market came through similar external shocks in the global financial crisis and COVID
remarkably unscathed.
What’s more, so long as demand outstrips supply, prices will continue to surge, particularly at
the more spacious end of the market. Of course, more affordable housing would dilute demand,
but there’s been scant evidence of enough property being built to do this any time in the near
We also need to consider the looming spectre of a potential recession. The war in Ukraine and
resulting energy crisis rumbles on and there are plenty of gloomy predictions as to what this
means for the UK economy were it to continue.
The UK housing market has proved recession-proof in the past and could do so again. But, it’s
worth sounding a note of caution. Interest rates were slashed following the last financial crisis,
incentivising market activity. With an ongoing fuel crisis and soaring inflation, this isn’t likely to
happen again, not least because the BoE has fewer fiscal levers to pull on this time around.
And, without cheap credit, the housing market won’t rebound anything like as quickly.
One final point is the double bind homebuyers currently find themselves in, caught between a
cost of living crisis and astronomical property prices. If left untended, we will reach a point
where homebuyers simply can’t afford to buy. When and if we get there will depend upon
decisions taken by the government and BoE in the next few months.