Back to the heady days of double-digit house price rises, but don’t lose your head this time (ONS)

Sarah Coles, personal finance analyst at Hargreaves Lansdown, comments on the ONS’s publication of the House Price Index for March, which shows double-digit house price rises.

Key points from House Price Index:

Average house prices in March were up 10.2% in a year – the highest annual growth since before the crash in August 2007.
The average house price hit a record high of £256,000 – up £24,000 in a year.
The highest prices are in London, where the average house prices rose to£500,000; but the annual price rise is just 3.7%.
The fastest-rising prices are in Yorkshire and the Humber, where they’re up 14% in a year.
Prices in the North East remained the lowest in the UK, at an average of £146,000.
The race for space has created a gap between price rises of houses and flats, with the average detached property price up 11.7% and the average flat up 5% in a year.

Sarah Coles comments:

“We’re back to the kind of double-figure house price rises we saw in the heady days before the financial crisis. And while lenders are far more cautious than they were back in 2007, in this kind of market, there’s still the risk buyers will lose their heads, and make a property mistake that could haunt them for years.

“It was a record March for property sales. Buyers who were rushing for the old stamp duty holiday deadline didn’t delay sales when it was extended: buying and selling has been so stressful recently that nobody wanted to scupper a sale by changing their plans. Sales were higher than any March on record, and double the number of the previous March. The rush of demand pushed prices to record highs.

“Average prices have hit half a million in London, but they’re rising slower than anywhere else in the UK, partly because of the dearth of international buyers, and partly because the race for space is boosting demand for the suburbs more than for the studio flats in Zone 1 within spitting distance of the office nobody has been to for more than a year. Flat prices are up just 5% over the past year.

“The extension of the stamp duty holiday helped ensure this won’t be the last of the record months this year. The Royal Institution of Chartered Surveyors figures show it enthused buyers more than sellers, so a shortage of properties has helped push prices higher through April and May too.

“For first-time buyers, this is a hideous market. Average prices are up £24,000 in a year, so saving a 10% deposit has needed £2,400 extra in savings. The stamp duty tax break for first time buyers purchasing a property worth less than £300,000 means enormous numbers of them aren’t even saving any tax to make up for it.

“Government guarantees for 95% mortgages, and lenders stretching income multiples, mean they may still be able to buy. But they need to be incredibly careful. In this kind of market, properties often go for well over the asking price – sometimes after a bidding war. It’s far too easy to be sucked into paying thousands of pounds more than you initially planned. It’s also easy to start panicking that if you don’t buy now, you never will, because house prices will rise another few thousand pounds next month. This kind of stressed decision-making can lead to horrible mistakes. If you can afford to pay more, and you’ll still be happy that you did when the heat comes out of the market, then you may want to go ahead. Otherwise it’s worth taking a step back and reassessing what you can afford.”

Kindly shared by Hargreaves Lansdown

Main photo courtesy of Pixabay