Runaway property prices defy expectations

interactive investor comments on the latest Halifax House Price Index.

• Average property price reaches another new record high of £282,753 in March, according to the latest Halifax House Price Index
• The annual rate of house price inflation (11%) continues to track around its highest level since mid-2007
• Two years on from the first lockdown, house prices have now risen by £43,577.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The sizzling pace of house price growth was maintained in March, with the ongoing mismatch between the supply and demand for housing pushing the price of the average property to a new record high.

“The average house price has grown by a staggering 18.2% two years on since the first lockdown - or £43,577 in pounds and pence terms. Home ownership has become even more unaffordable for many first-time buyers who were already priced out of the market in many areas even before the pandemic hit.

“The plight of those making a second rung of the property ladder is also important as they are living in homes that many first-time buyers seek to purchase. Runaway property prices have left many of these so-called second steppers struggling to trade up to a bigger home. The demand for more spacious homes, spurred by an increased number of people working from home during the pandemic and the advent of flexible working models, have inflated the cost of larger properties.

“Housing affordability is a growing concern for would-be buyers. It is largely dependent on three factors: house prices, household income and mortgage interest rates. All three have been rising, but the two that reduces affordability (house prices and mortgage rates) combined outstrips growth in household income - the area that increases affordability.

“Rising house prices means buyers have to save bigger deposits than they did pre-pandemic. The cost-of-living crisis exacerbates matters, eating into disposable income, making it harder to save for a deposit. The likelihood of higher interest rates to combat soaring inflation means that for those looking to buy their first home, it is only going to get tougher. Fast-rising rents are not offering any relief and could keep some wannabe homeowners in the hunt for a home for longer than they would like.”