The housing market is becoming less affordable, as prices increased by 9.8 percent in the year to March, according to the most recent Land Registry figures. However, experts believe demand remains high, therefore prices will not come down to balance the interest rate hike.
Buying agent Henry Pryor foresees demand for property in the UK continuing to significantly exceed supply, meaning UK house prices are extremely unlikely to fall.
Mr Pryor told BuyAssociation.co.uk: “It will dampen enthusiasm but it won’t cause prices to fall. House price inflation this time next year will be two percent rather than five percent.”
He added: “Demand always exceeds supply, even when house prices historically fall.
“The average estate agent’s office today has about 20 houses for sale but nearly 400 buyers on their books.”
Fears for a crash of the housing market are spiking due to the cost of living crisis and looming recession driven by the war in Ukraine and the COVID-19 pandemic.
But a crash similar to the one that the country saw during the ‘90s is “extremely unlikely”, a Bank of England executive said.
Sir Jon Cunliffe, deputy governor for financial stability at the Bank of England, told ITV News: “I am certainly not predicting a crash in house prices.
“I think when rate of increase goes down, that is a correction, and then there’s a question of whether house prices rise faster than other prices.”
He added that the impact of interest rate rises will take a while to appear in the housing market.
Sir Jon said: “I think a lot of [the rise in house prices] is to do with the way the pandemic affected people and affected their preferences for where they wanted to live.
“The other factor [is] many people built up savings simply because they couldn’t spend, so there is probably £200 billion of extra savings in the economy from that period.
“I think that also helped people go into the housing market to buy housing.
“One very important fact – though house prices have risen and are still rising fast – household indebtedness, the amount of mortgage that people are borrowing relative to their income, hasn’t really changed.”
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The Bank’s experts set the rate at 1.25 percent, a rise from one percent previously, and the fifth increase in a row as it tries to tame runaway inflation.
It also warned that prices for households across the country might increase even further than previously thought.
Three of the nine-person Monetary Policy Committee (MPC) voted for an even bigger hike, arguing that rates should rise as high as 1.5 percent.
In a notice, the Committee said: “In view of continuing signs of robust cost and price pressures, including the current tightness of the labour market, and the risk that those pressures become more persistent, the committee voted to increase Bank rate by 0.25 percentage points.”
