As expected, the housing market experienced a boom in January. The expectation for home buyers to flood into the market was based on buyers seeking to avoid having to choose a mortgage with a higher interest rate. The Bank of England’s Monetary Policy Committee (MPC) increased the historically low standard base interest rate in December from 0.1% to 0.25%. The next meeting set for the MPC would be February. This would leave a tight window of opportunity for homebuyers to purchase and still have access to cheap borrowing.

Now January has passed and we are days away from what is expected to be the first back to back interest rate increase by the MPC since 2004 on 3 February. The forecast for another rate hike is strong with a possible increase that doubles the rate to 0.5%.

Nationwide reported that the average house price had increased by 0.8% between December and January. The year to year increase reported at 11.2%.

Affordability is now a concern among experts. According to Nationwide, a purchase deposit is now at the highest level percentage of a buyer’s salary ever recorded. 

Robert Gardner, Nationwide chief economist, remarked, “A 10% deposit on a typical first-time buyer home is now equivalent to 56% of total gross annual earnings, a record high. Similarly, a typical mortgage payment as a share of take-home pay is now above the long-run average, despite mortgage rates remaining close to all-time lows.”

The average house price in the UK in January was £255,556, which was an increase over the December level of £254,822.

Mr. Gardner, added, “Mortgage approvals for house purchase have continued to run slightly above pre-pandemic levels, despite the surge in activity in 2021 as a result of the stamp duty holiday, which encouraged buyers to bring forward their transactions to avoid additional tax.

"Indeed, the total number of property transactions in 2021 was the highest since 2007 and around 25% higher than in 2019, before the pandemic struck. At the same time, the stock of homes on estate agents' books has remained extremely low, which is contributing to the continued robust pace of house price growth.”

Experts warn that more rate increases could be on the way beyond the one that is likely to occur this Thursday. It will be necessary to curb the fast paced increase of inflation. 

Home buyers are not the only group of borrowers taking advantage of the current low interest rate offers, as homeowners rush to remortgage. While those that have already had their mortgage deal end and have moved to their lender’s standard variable rate (SVR), and homeowners close to having their mortgage term end are the most likely to seek a remortgage, even those not close to the expiration of their deal are shopping for a new deal. 

Some homeowners are thinking ahead and are considering paying a penalty fee to end their term early to have access to a choice of long term fixed rates of today than face higher interest rate choices when their term would normally end. 

The inflation rate is expected to increase to 6.0% by spring. The target rate set by the Bank is 2.0%. A decline in the inflation rate will be slow, which is an indication that more rate hikes are ahead.