The latest Halifax House Price Index has revealed that property values increased by 0.4% in August, bringing the cost of a typical UK home to a record breaking £294,260.
Although the annual rate of growth reduced slightly, it still stood at 11.5% – with average house prices having increased by an average of more than £30,000 over the last year alone. Prices have risen in seven out of the last eight months as the market continues to show resilience in the face of tough economic conditions.
Despite this, the lender believes expectations should be cooled, with a likely slowdown in market activity as the cost-of-living crisis bites – but it also points out that this should be viewed in the context of the “exceptional growth” seen in recent years.
Kim Kinnaird, Director of Halifax Mortgages, commented:
“While house prices have so far proved to be resilient in the face of growing economic uncertainty, industry surveys point towards cooling expectations across the majority of UK regions, as buyer demand eases, and other forward-looking indicators also imply a likely slowdown in market activity.
“With house price to income affordability ratios already historically high, a more challenging period for house prices should be expected. However, this should be viewed in the context of the exceptional growth witnessed in recent years, with average house prices having increased by more than £30,000 over the last 12 months.”
Will Interest Rates Rise Again?
One of the key factors that could affect the market in the coming period is the current cost-of-living crisis, with the Bank of England raising interest rates over recent months in a bid to curb the UK’s soaring inflation.
The Halifax believes that “while government policy intervention may counter some of these impacts, borrowing costs are also likely to continue to rise, as the Bank of England is widely expected to continue raising interest rates into next year.”
The base rate currently stands at 1.75%, up from just 0.25% as recently as last December – something which is having a significant impact on landlord costs, significantly driving up the costs of a typical buy-to-let mortgage and making many consider alternative investment options which can be made without a mortgage.
Despite rising interest rates impacting borrowing power, there is currently little sign that this is having a significant impact on the market.
Will House Prices Continue to Climb?
UK house prices have enjoyed remarkable growth over the last few decades, but considering the current economic uncertainty, it would be reasonable to expect the market to slow.
Despite some signs of this, strong demand continues to exceed the available housing stock. At the moment, most agree that there are very few signs that would point towards an impending property market crash, which should give investors some confidence at this time.
One factor for investors to consider, however, is the rising interest rates and the impact this may have on borrowing costs, particularly on a typical interest-only landlord mortgage.
Considering the uncertainty over interest rates and other challenges currently facing landlords such as increased legislation, those interested in property investment may be wise to bypass traditional buy-to-let investments and seek out alternative, more hands-off options where returns can be generated without taking out a mortgage or worrying about the aforementioned challenges currently being faced by private landlords.
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Important note: The advice provided in this article is general in nature and does not constitute personal financial advice. If you are unsure whether an investment is right for you, please seek professional advice. If you choose to invest, the value of your investment can both rise and fall so you may get back less than you put in.