The UK housing market is feeling the pressure from higher interest rates. As the Bank of England’s Monetary Policy Committee (MPC) began hiking the standard base interest rate last December, hopeful home buyers remained. Many were taking the opportunity to buy before rates grew higher and thus more expensive. Since the first increase, the base rate has risen from almost zero at 0.1% to 3.0%. The action by the MPC is meant to put a halt to the growth of inflation, and that could take months into next year which means more rate hikes to come.

While there have been eight consecutive meetings in which the base rate was increased, the housing market remained active. Yet, experts had multiple warnings of the impact should the activity slow.

The housing market is vital to the UK economy and when it lacks strength, the economy suffers as do consumers. This warning is diluted due to the many other factors impacting consumers, including inflation, higher interest rates, higher energy costs, and the continued difficulties caused by the pandemic.

Perhaps the most significant warning about the housing market slowing is that property values could decline. This could cause a deep financial strain on homeowners, especially newer homeowners for they could decline into negative equity or go underwater with their mortgage, as it is sometimes called.

 Negative equity occurs when the property value falls below the level of debt. 

Homeowners in negative equity are out of reach of remortgaging, which is an opportunity available to secure an interest rate and avoid further hikes by the MPC. The demand for the ability to remortgage is so high, that some homeowners are taking on a penalty fee to end their term and allow early remortgaging at current rates rather than wait until their mortgage term would have ended when rates could be higher.

A slower housing market is of course difficult on those seeking to sell their property. Some may be in a financial situation and need to sell of their property, others may be moving due to career changes, some might be selling to let go of a second home, while others might be downsizing or needing to sell to upgrade for their growing family. When a property owner chooses to sell, there is a need to sell at a profitable level and quickly. 

The UK housing market is losing the attention of home buyers. Fewer are inquiring, and sellers are choosing to take offers below their asking price to complete a sell.

According to the latest report from Halifax, the UK average house price fell by the fastest rate in 14 years, which was the start of the financial crisis. The November house price was reported at £285,579. This is a decline of 2.3% from the average house price reported in October of £292,406. It also marks the third consecutive month in which the house price has experienced loss.

Kim Kinnaird, director at Halifax Mortgages, remarked, “While a market slowdown was expected given the known economic headwinds, and following such extensive house price inflation over the last few years, +19% since March 2020, this month’s fall reflects the worst of the market volatility over recent months. 

“Some potential home moves have been paused as homebuyers feel increased pressure on affordability and industry data continues to suggest that many buyers and sellers are taking stock while the market continues to stabilise.”