Homeowners are being told to stay alert to the UK housing market. Rightly so because if house prices begin to sink, then so could property values and that could impact homeowners in many ways, including making them a prisoner to their current mortgage. If property values decline below the amount of debt owed, then they are in negative equity and out of reach of a remortgage. Since a remortgage could offer savings and shield from further rate hikes, it could lead to financial difficulties hard to escape if one is unable to remortgage.

By keeping an eye on the housing market, a homeowner could be made aware that things are either staying steady despite forecasts or that experts were more optimistic about the market than they should have been.

The UK housing market has been somewhat unpredictable in recent years through economic events. When Brexit began, it was thought that housing prices would plummet and because of it the economy would be in turmoil. However, hopeful home buyers stayed interested in the market and lower interest rates helped them stay within reach of their homeownership dreams. It kept the economy stronger than expected and it revealed that home buyers are not likely to run from the market when there are schemes and other helpful tools to keep them within reach of a purchase.

The global pandemic was certainly a factor that would have unknown consequences on the market. Experts believed due to lockdowns and other difficulties that the market could suffer greatly. However, the lockdown produced a deep desire for more room within and outside of the home. People needed private areas to work from home, for children to learn and study, and for other needs such as getting fit, personal entertainment, and more cooking from home rather than dining out. A garden offered the ability to safely enjoy the outside with family, children, and pets.

Buyers were eager for homes in areas that had been overlooked such as country homes. The cottage lifestyle overtook the night life as cities were closed. The housing market boomed.

Historically low interest rates and discounts from a stamp duty made buying a home more affordable than in decades. Demand was strong. It caused house prices to climb. House price average highs broke records month after month, and as house prices climbed, so did property values. Homeowners enjoyed property value increases that were climbing at rates not seen in generations.

However, those gains in property values could disappear. In fact, they could disappear just as quickly or even quicker than they grew. Interest rates have risen and house prices remain high which combined make it difficult for home buyers to afford what was more affordable just a year ago. Saving for a deposit is even harder with inflation taking more from people’s budgets.

Experts believe the housing market could slow considerably. Some have forecasted slight declines while others have forecasted a steep fall. If the market weakens considerably, it could cause the economy to suffer deeper and longer. It could also cause issues for homeowners if they fall into negative equity.

Currently not only are higher interest rates an issue, but there is a battle between sellers and buyers. Buyers are finding properties unaffordable. One report shows in 150 years homes have not been less affordable than they are now. Despite the hardship on buyers, sellers are not budging. They are not dropping their asking prices to reflect the higher costs of borrowing or the toll of inflation.

One will have to give in eventually, and it is likely to be sellers. Unfortunately, the compromise may be too little and too late. Interest rates are expected to increase again at the March meeting of the Bank of England’s Monetary Policy Committee (MPC). If so, it will be more expensive to borrow. Buyers could step back quickly from the market if sellers do not help buyers afford a purchase. 

There might be buyers that cannot drop their asking price. They could be homeowners that purchased when interest rates were at historic lows. Perhaps they bought into a deal that was affordable then, but not now. They pushed to the edge of the boundary of affordability and higher interest rates have made their pandemic lifestyle dream home unaffordable. To escape with less of a financial blow, they hope to sell the property for the amount of debt owed and perhaps just a bit more to help the family relocate.

The market likely has some home sellers that cannot afford to drop their asking price and home buyers that cannot afford to purchase at the average asking price. There will be no winner here. Not even winners outside the housing market if a standoff occurs and the market plummets.

Not in a generation has inflation reached as high as it has, nor have interest rates grown so rapidly, has energy been so expensive, have house prices been so high, and have home buyers so quickly purchased and then been thrown into an economic scenario as they find themselves. It was slightly over a year ago when the Bank’s interest rate was at almost zero at 0.1% and lenders were offering historically low interest rates for their institution. 

Homeowners would do well to watch the battle within the housing market, for depending on how long the battle goes and how hard the market falls it will determine their own battle ahead.