Why Are House Prices So High And How Long Is It Going To Last?
In 2021, house prices rose by an average of 27%. This sees them reaching record highs. Many experts expected that the growth in prices would stop with the end of the stamp duty reprieve. However, prices continued to grow into December of 2021. So why are they continuing to grow, and is it going to last?
Why Prices Keep Rising
A combination of factors led to the record high house prices in 2021. At the start of the year, there was a lot of pent up demand. The lockdowns had prevented people from moving and had also changed a lot of people’s priorities.
Furthermore, the government introduces a stamp duty reprieve to get the market moving again. This meant that stamp duty was waived for higher-priced properties. The result of this was that houses were getting snapped up for higher and higher properties.
When the government returned stamp duty to normal in September, many estate agents expected that prices would start to drop again. However, there was still a lot of demand for homes, and with all the sales made before the deadline, there was a low supply. As a result, house prices began to climb.
Is It Going To Last?
Right now, the housing market stands in stark contrast to the rest of the economy. The energy bill crisis is causing the cost of living to skyrocket, which is already beginning to cause an economic slowdown. So is this going to have an effect on house prices?
Currently, the demand for houses remains high. People are still looking for homes with more space as a reaction to the pandemic and the lockdowns, which is likely to keep prices higher in the short term.
The Bank of England has signalled that they expect inflation to rise in the coming year. This is going to start making mortgages more expensive, especially as fewer banks are offering fixed-rate mortgages. Higher costing mortgages are often the cause of lower house prices.
The cost of living is rising, and with energy bills expected to jump massively in April, this is very likely to impact people’s spending habits. When the reality of higher bills begins to affect people’s lives, they may begin tightening their belts.
With less spare cash, people may reconsider moving as there are a lot of costs involved. It is also possible that buyers will become more selective about the houses they are considering. For instance, there is likely to be more focus on homes with better EPC (Energy Performance Certificates).
What Should We Expect?
House prices have been high and rising for a long time. For estate agents and landlords, it’s become the status quo for the last year. But experts are predicting that 2022 is going to be a turbulent year for the property market, especially with the rising cost of living.
Buyers may be best off waiting for prices to drop a bit before they make a purchase. Those looking to sell in the coming months may want to make sure their EPC rating is as good as possible and, if necessary, get a new assessment to help showcase the energy credentials of the property and attract buyers looking for lower energy costs.