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Cheap mortgages and economic rebound continue to support housing market

Over the past 15 months, house prices have climbed at a rate higher than most experts would have predicted in the face of recent events. Industry insiders look at whether these trends will continue in the UK housing market.

Through the highs and lows of the pandemic, the property sector has remained extraordinarily resilient. While there are many factors at play, the latest roundup from Savills points to two key pillars supporting the rise.

The first of these is the cheap borrowing rates that continue to be available. The Bank of England base rate remains at an all-time low of 0.1%, and this has kept mortgage lenders’ offerings competitively low. According to Bank of England data, the average 2-year fixed rate for a 75% loan-to-value (LTV) mortgage is currently just 1.23%. This is down from an already low 1.86% at the beginning of 2021.

Even borrowers with lower deposits can secure extremely competitive deals. With a 15% deposit, borrowers can get an average rate on a two-year fixed mortgage of 1.99%. For a 90% LTV mortgage, the average rate is now just 2.47%.

Drawing more people to UK property

Property prices in the UK housing market are continuing to climb. While monthly house price indices are notoriously volatile and easily skewed, they nevertheless paint an overall picture of the confidence currently in the sector.

For example, the Halifax index reported a monthly price rise of 0.7% in August. Year-on-year, house prices in the bank’s index rose by 7.1%.

The Office for National Statistics (ONS) also released its data on how house prices have faired to date. It recorded an 8% rise in property prices over the past year.

House prices aside, Savills reports sustained optimism in the UK housing market.

“Interestingly our own client survey, that is weighted to the top end of the housing market, suggests that a net balance of +16% of potential movers have become more committed to moving in the next 24 months, slightly lower than the +22% in June. Meanwhile 61% said their ability to buy has been significantly inhibited by a shortage of stock.”

Growing economy will attract investment

The past 18 months has presented challenges for many parts of the economy, and this applies worldwide. However, the UK showed a strong rebound during the first half of 2021, according to ONS data. It now reports a levelling off in its July data, but this does not detract from the prior performance.

As Savills points out, this economic rebound has helped to stimulate activity in the property sector. Oxford Economics, says the Savills report, expects the UK economy to grow by a total of 7% this year.

In terms of investment from overseas, the UK housing market has historically been seen as a “safe haven”. Appetite for investment in the sector remains extremely high, particularly as housing stock falls short of demand right now.

“It looks as though a shortage of stock is likely to continue to support house prices over the remainder of this year,” says Savills.

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