The UK housing market continues to show resilience as data reveals more surprises. Interest rates have been on the rise since December 2021. It was then the Bank of England’s Monetary Policy Committee (MPC) began the first of eleven consecutive meetings in which the standard base interest rate was increased. The rate went from almost zero at 0.1% to 0.25% at the end of 2021 to 4.25% last month. When rates are higher and borrowing more expensive, especially after an extended period of rates being low, the housing market would be expected to slow. However, there is still strong demand in the market as hopeful home buyers refuse to be deterred from their homeownership dreams.

One sign of market resilience is that homes popular with first time buyers are seeing an increase in asking prices. 

According to Rightmove, homes with one or two bedrooms, the popular choice for first time buyers, are 2% higher than one year ago. The average asking price of first-time buyer homes is now a record high of £224,963.

Data also reveals first-time buyer type homes are outpacing the other types of properties on the market. This is a turnaround from what occurred when the pandemic lockdowns were pushing larger country homes with private greenspaces. 

Sales for first time buyer properties are 4% more than in March 2019. Homes usually purchased as an upgrade from a first-time buyer home are 4% behind, and higher budget homes are lagging 3% than four years ago.

Initially the data could be viewed as a good thing for the housing market as it shows there is still demand even though the cost of borrowing has increased. However, rising asking prices, especially for first-time buyers could further shut out buyers beyond those already stepping back due to interest rate levels. For while demand has pushed asking prices upward, the volume of sales has declined 18% in comparison to last year.

The overall housing market was reported as up by 0.2% to an average of £366,247. 

The health of the housing market is important to the UK economy. It is also important to individual homeowners. Home buyers staying in the market helps keep property values in place. When the market is strong property values can grow rapidly as they did when the pandemic buying boom occurred and when demand in the market drops so can property values.

A homeowner’s property value is important not only for the investment they have made in their purchase, but because the value plays a role in not only whether a homeowner can remortgage but also what interest rates they are offered when they remortgage.

As interest rates have risen, so has the need for remortgaging. For some homeowners, discovering they could be paying hundreds more per month due to increased rates is not only a financial shock, but they are unaware as to such a drastic change even being a possibility.

When homeowners come to the end of their mortgage term, they could remortgage or allow their lender to move them to their standard variable rate (SVR). With a remortgage, not only will the interest rate typically be lower than a SVR, but a fixed rate deal is a possibility. A fixed rate locks in the rate for the duration of the mortgage term, and a fixed rate mortgage is what tens of thousands of homeowners obtained just two years ago when the housing market buying boom was taking place.

Now as the terms are ending so are the historic low interest rates they found with their lenders. Interest rates are higher, borrowing is more expensive, and repayments are higher. To find the best remortgage possible, it would be important for the homeowner to have a property value higher than their debt on the property which is the loan to value ratio that lenders use to determine offers.

If the property value falls below the debt, then it is known as negative equity and a remortgage is out of reach. This keeps the homeowner stuck on a higher interest rate SVR until they can put their debt below the property value, or their value increases again.

This is why the news about first-time buyer properties being in strong demand should be taken cautiously. Record high asking prices for properties that are popular for first-time buyers could be simply reflecting the hopeful dream of home ownership is alive and strong, or it is the sign that more first-time buyers will be out of reach of the property ladder soon.

First-time buyers are important to the housing market as they keep the flow moving through the market. They purchase starter homes and allow those homeowners to upgrade as their family or income grows and movement flows through the market as homeowners become home movers. Without them, the market stalls, so they are valuable buyers in the market. The economy needs them, sellers need them, home movers need them, and their impact on the market and property values makes them important to homeowners as well.

It is good news that there is strong demand in the market, but caution remains as to what it could mean overall to the housing market in the months ahead as interest rates are due to rise further and asking prices grow.