With the warning of higher interest rates, there was a rush to buy in the housing market. Home buyers were faced with higher house prices, but the ability to borrow a large volume of money at a low interest rate level was going to slip away. Because of the demand from hopeful home buyers, and the low supply in the market, house prices reached yet another record high. Halifax revealed that there was a 0.3% increase from December to January, and the yearly increase was 9.7% over the 12 months to the end of January.

The average house price reached a new high of £276,759 for Halifax data.

Higher house prices and higher interest rates and continued low supply, especially of starter homes in the housing market, will be shutting out first time buyers. Even home movers will find the housing market less friendly to their budget.

The inflation rate target is 2.0% for the Bank of England, and the target is far from the current level recorded at 5.4%, which is the highest level seen in almost 30 years. It is expected to rise further even though the Bank’s standard base interest rate has been increased in back to back meetings since December. 

The rate was increased from the almost zero level of 0.1% to 0.25% and then doubled to 0.5% in the start of February. With predictions that inflation could reach 6.0% in spring, more interest rate hikes are expected.

Higher interest rates make borrowing more expensive. 

When rates were historically low only months ago, rising house prices were not seen as a hindrance to climbing onto the property ladder. For those homeowners that purchased and did not take into consideration climbing interest rates, the shock to their household budget could be devastating.

Remortgaging is a path to securing a new deal with a low interest rate attached to a longer term deal. By choosing a fixed rate remortgage, a homeowner could lock in the low interest rate against the expected rate hikes. It could buy them time to better repair for the even higher level interest rates possible in the near future. 

Hopeful home buyers should seriously consider their jump into the market. Rates will be rising. House prices could climb higher due to strong demand from those seeking to escape any near future interest rate increases. When demand lowers, so will property values. Depending on the market and the economy, some homeowners could be holding mortgages that are reflective of the higher prices on a property that has then fallen in value. This is what is called having a mortgage under water.

There is little for homeowners to do when they are paying a debt on a property that no longer has the value it once did due to falling property values. Remortgage goes out of reach and they are at the mercy of their lender’s risky and usually more expensive standard variable rate (SVR) that will quickly rise as each interest rate hike occurs.

There is caution being issued to home buyers that are tightly squeezing onto the property ladder. Having a financial cushion in place for rising interest rates is important. The low historic levels of interest rates seen only last year may be quickly fading into history once again.

Homeowners should prepare as well. Experts encourage homeowners shop for a remortgage online to quickly determine what savings could be available.

The market and economy is changing rapidly. Home buyers, especially first time buyers, should make careful consideration and the current state of the forecasts indicates more and more hopeful home buyers will be shut out.

Russell Galley, Halifax managing director, stated that house price growth is currently stretched above the pace of wage rises, making homeownership less and less affordable.

He remarked, “Despite record levels of first-time buyers stepping on to the ladder last year, younger generations still face significant barriers to home ownership as deposit requirements remain challenging.

“This situation is expected to become more acute in the short term as household budgets face even greater pressure from an increase in the cost of living, and rises in interest rates begin to feed through to mortgage rates.

“While the limited supply of new housing stock to the market will continue to provide some support to house prices, it remains likely that the rate of house price growth will slow considerably over the next year”