The property ladder is usually seen as being in constant motion. New first time home buyers are moving onto the ladder and into either new housing or starter homes where the previous homeowner upgraded to a larger property. Then that same home mover might upgrade again or later downsize and their home is now open to another home mover. However, the lack of supply in the housing market is slowing down the movement of the property ladder in the UK.

First time home buyers are also facing record high average asking prices. A recent report revealed that the average deposit for a home is more than half the average annual income of a first time hopeful home buyer. Saving half of one’s income is an enormous undertaking and will be even harder now that inflation is higher.

The higher asking prices are not only hindering the ability for some to come up with deposits, but it could be shutting many out of the housing market. 

Rising interest rates are making borrowing more expensive for home buyers and home movers. The Bank of England’s standard base interest rate was almost zero at 0.1% at the start of December. In the same month’s Monetary Policy Committee (MPC) meeting, in response to rising inflation, the rate was increased to 0.25%. The next meeting, held in February, saw another interest rate increase to 0.50%. 

The next meeting of the MPC is scheduled for 17 March and could see another hike to 0.75%. This could be the level at which most mortgages become unaffordable for first time buyers in conjunction with the record high asking prices.

The lack of supply is making it hard for those seeking to downsize or upsize as well. 

Some that sought out home features to make the pandemic lifestyle more tolerable discovered that property shopping was more difficult than expected. Many resorted to improving their home through upgrades and changes to become the property they had been seeking rather than move home. 

This was made possible for some through equity release remortgages. Homeowners were able to cash out their built up equity and put cash in hand to invest back into their property or to pay for needed items such as fitness equipment, office supplies, or study desks for students. The expenditure was up to the homeowner and low interest rates made the opportunity appealing.

The property ladder has been slowing down and could keep doing so as prices are set to continue to be high for months to come. Demand will remain high as buyers seek to avoid further interest rate hikes that are forecasted to occur. In fact, if the MPC does raise the rate again in the coming weeks, it might trigger a boost in the housing market as buyers rush to beat future higher borrowing.