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Overview: what’s been happening in the property market this summer?

  1. 29 August 2018
  2. By Andi Michael

We have a look back on the top property stories this summer, and what they mean for those trying to buy homes now.

It’s been an eventful summer so far, with an extended heatwave of the like not seen since 1976, a brilliant World Cup in Russia (and England's much better than expected showing) and upheaval in the world of politics.

But how has the property market been faring? Here, we give a quick run-down of the things that have had the biggest impact on UK housing in the summer months.

Interest rates rise

After much speculation the Bank of England increased interest rates – from 0.5% to 0.75% - at the start of August, only the second rise in over a decade. Despite concerns over inflation and Brexit uncertainty, strong employment levels, greater consumer spending, the prospect of wage rises and predictions for a strengthening economy gave the Bank’s Monetary Policy Committee (MPC) the confidence to act.

It meant that more than 3.5 million people on variable or tracker mortgages now faced higher monthly repayments – albeit, in most cases, only up by slightly more than what they were paying before.
Most first-time borrowers – who are typically on fixed-rate deals that aren’t affected by the rise and fall of interest rates – won’t see any change in their mortgage costs.

The Governor of the Bank of England, Mark Carney, talked about further increases in the future – but these, he said, would be gradual and limited. Financial markets expect two further rises, of 0.25% each time, in 2019 and 2020, bringing the base rate to 1.25% by 2020. A return to interest rates of 5% or more – a familiar position before the global financial crisis took hold in 2008 – is, though, highly unlikely.

Remortgagers are still being encouraged to act, to lock in favourable deals before interest rates rise again in the next couple of years.

Brexit turmoil and another new Housing Minister

In an extraordinary turn of events, one Monday in July saw the resignations of Brexit Secretary David Davis and Foreign Secretary Boris Johnson as Theresa May’s Brexit plan hammered out at Chequers quickly unravelled.

The resignation of Davis meant a hasty promotion for Housing Minister Dominic Raab, who was installed as the new lead negotiator for Britain.

Raab himself was replaced by Kit Malthouse, the little-known MP for North West Hampshire, and the man with the dubious honour of being the 17th different Housing Minister in 21 years.

Average house price hits highest ever level

House prices picked up in July, leading to the average home in the UK costing a new record high of £230,280, according to Halifax. The annual rate of growth grew from 1.8% in June to 3.3% in July, while prices went up by 1.4% on a monthly basis.

However, Russell Galley, managing director at Halifax, cautioned that housing activity remained soft despite the improved quarterly and annual rates of house price growth. On the upside, the labour market remained robust – with the number of people in employment increasing by 137,000 in the three months to May – and pressures on household finances eased as average wages continued to rise at a faster rate than consumer prices.

He added that the Bank of England’s interest rate rise was unlikely to have a big impact on either mortgage affordability or transaction volumes. 

Stamp duty uncertainty among first-time buyers

Some 31% of first-time buyers don’t know if the stamp duty abolition announced in the last Budget will help them when they purchase their first home. That was the headline finding from research carried out by online broker L&C Mortgages, which also revealed that 13% of buyers thought they would save more than £5,000 under the new rules.

Most English first-time buyers think that the government need to go further with stamp duty cuts, with 62% arguing that stamp duty should be scrapped for all first-time purchasers regardless of the cost of the property they are buying.

Second steppers rely on family and friends to trade up

Research by Lloyds Bank found that many first homeowners looking to trade up to a bigger property have to rely on financial aid from family and friends, with one third requiring assistance from this source.

Second steppers expect to borrow an average of £25,450 to make the trade up. In most cases, this comes after turning to friends and family for financial support for their first home to the tune of nearly £20,000.

Parents of second steppers said they will dip into their own savings to help their offspring, while approximately 40% plan to remortgage.

As a result of the challenges faced, some 28% of second steppers now plan to have fewer children than originally planned – up by 16% since a similar survey last year.

Retirement property market set to boom

Data from Knight Frank suggests that the private retirement property market is estimated to reach a value of £44 billion by 2022, reflecting a 50% rise in just four years. In the same time period the number of private retirement living units is also set to grow by nearly 30%.

This might help those eager to downsize in their retirement years, who have in the past been thwarted by a shortage of appropriate housing stock.

Currently, there are more than 720,000 retirement units in the UK, but a large portion of this (75%) is social housing. This is changing, though, with private development now making up an average 54% of all new units delivered annually since 2000. This is set to rise to 78% annually by 2022.

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