House prices hit record high, says Halifax

Property Price Advice comments on the latest Halifax property price report.

The latest Halifax House Price Index has been released, revealing that property prices across the UK have jumped by an average of 4% in the year to September, which marks a major rise from August, when the lender said prices were rising at an annual pace of 2.6%.

According to Halifax, the average price of a residential property in UK had now risen to a new high of £225,109, supported by falling unemployment and a chronic shortage of properties for sale.

The latest data comes as somewhat of a surprise given that there is growing pressure on spending power and continuing affordability concerns.

But a closer look at the housing market, and specifically at the latest home price data, reveals that price growth is actually slowing in the south of England, where property prices are generally far more expensive compared with rest of the country.

In London, for instance, a number of vendors are offering greater price reductions compared with last year. A vendor who is realistic in terms of price expectation will often appeal to price-sensitive buyers.

In contrast, residential property values continue to soar in parts of the Midlands and the north of England, where properties are generally more affordable.

The latest rise in home prices is a major blow for many aspiring home buyers, many of whom would have expected to see values drop as a result of ongoing political and economic uncertainty.

With several buyers often chasing one property, property prices are likely to rise further in the near term – there are simply not enough homes available, partly because housebuilding targets are not being met.

A further blow for potential property purchasers is the fact that aside from rising home prices, mortgage lenders have also started to slowly increase their rates, making the cost of borrowing funds to acquire property more expensive.

What’s more, a Bank of England interest rate hike in November is starting to look increasingly likely and that would push up borrowing costs further, which would make life for buyers even tougher.

If the Bank of England does raise the base the rate in November as expected, some existing homeowners may find that their mortgage costs increase, especially those on a tracker of standard variable rate deal. Anyone in this situation may wish to consider taking a look at some of the fixed rate deals available, some of which are currently at a record-low, and lock into a cheap rate before the Bank of England makes its move.

But even if rates are increased in November or in early 2018, the consensus is that they are unlikely to rise more than 0.25%, and since any rate hike will be limited, the impact on transaction volumes may indeed be negligible in the near term.

The real concerns will arise when rates start edging towards and above 1%. Until then, property prices are unlikely to come under increased pressure.