Habito comments on the latest ONS House Price Index

Alan Fitzpatrick, VP Lending Operations at Habito, the online mortgage company, comments on the publication of the latest ONS House Price Index and what it means to the housing market.

“This ONS data reflects the year of the Stamp Duty Holiday – from the first deadline in March, the extended deadline in June, and the lower threshold which was payable until the end of September. To put this incredible one-year price rise into more context, £27,000 would be the 2022 take-home salary post-tax, of someone earning £35,000 (more than the UK average full-time salary which is £31,285). 

“But this rise in house prices is highly unlikely to be repeated again this year. Since this ONS House Price data was collected in December 2021, we’ve seen two base rate rises in two months from the Bank of England as they try to get a firmer grip on inflation. HSBC this week estimated that base rates will be at 1.25% by August, so the financial markets are bracing for further rate rises over this summer. Base rate rises lead to more expensive mortgage rates, which should lower the demand for home buying and have a cooling impact on house prices. 

“Alongside this, mortgage applicants’ affordability is likely to decline in the coming months. Even though average wage growth picked up in January, it failed to keep up with inflation. The Consumer Price Inflation report published this morning revealed that inflation has hit a 30-year high of 5.5%. 

“The ‘winners’ from rising inflation are borrowers on fixed-rate deals. These homeowners know that their monthly repayment amounts will stay the same for years, and won’t be subject to the types of shocks we’ve seen in energy, food, and petrol bills. 

“For those that can fix it for longer, now could be a good time to get a new mortgage, or remortgage for home improvements and renovations. The unusual combination of high inflation and low (in historic terms) mortgage rates on the market, makes borrowing more attractive. For those with large deposits (60% loan-to-value), there are 10-year fixes, some even <2% interest rates, for example from Halifax, or Leeds Building Society, meaning repayments are locked in until 2032. These deals also offer homeowners peace of mind; most people don’t want the worry of what the Bank of England may or may not do at the next meeting. 

“Not only do long-term fixes offer homeowners protection from rising interest rates, but as inflation rises, the “real” cost of repaying today’s mortgage grows cheaper over time. Essentially, homeowners can repay the loan in ever-cheaper pounds, which can ease the cost of borrowing. Homeownership is considered somewhat of a natural hedge against inflation, given the trajectory of most homes, in most regions, to appreciate over time, and of course, those who own their homes, aren’t exposed to rent inflation either which is also increasing; Zoopla reported last week that rental costs are rising at the fastest pace for 13 years. 

“That said, these cheaper mortgage deals are not likely to be around for too much longer.”

 

Kindly shared by Habito

Main photo courtesy of Pixabay