The UK housing market has been robust since the first lockdown caused by the global pandemic. It had been thought that the market would face difficulty, and no one could have predicted that instead home buyers would rush into the market to buy a home better suited to a pandemic lifestyle. It happened that demand grew for property with more room, and that included room both inside and outside to better deal with the new lifestyle thrust upon the public. However, as vaccines became available and rising cases were no longer as big a threat, the demand for housing remained.

The surge in buying caused supply in the market to become a problem. Not only were there many more buyers, but construction and remodeling that would have normally brought more homes onto the market was slowed down and at sometimes completely shut down. With dwindling supply and strong demand, the cost of buying became more expensive.

The higher asking prices were handled though due to the fact lenders were offering such attractive interest rates. The Bank of England’s Monetary Policy Committee had been forced to assist the economy by lowering the rate and it fell to a record low, of over 300 hundred years, to sit at 0.1% for many months. The cheap borrowing allowed hopeful home buyers to stay motivated and have confidence in the market and their dreams of becoming homeowners.

However, inflation began to take hold in the last half of 2021. There were rumors of a possible rate hike that would likely occur in the first quarter of 2022. It happened sooner than expected as the MPC met in December and made a rate increase pulling the standard base rate out of the historic low and after consecutive increases in the past few months it now is at 0.75%.

More expensive borrowing along with higher asking prices is having an impact on the volume of sales and the forecast for what is ahead. The reports from experts encompass all possibilities as inflation remains a problem, supply in the housing market is still low, supply chains for materials for building are disrupted, inflation is harming consumers, the war in Ukraine brings unknowns, and the pandemic lingers. There could be any outcome in the market throughout the year from a housing recession, a market bubble burst causing a rapid crash, and even continued growth in the market with no sign of slowing down and creating a new normal in the market.

With no clear path yet chosen by forecasting experts, there is one thing that is certain and that is first time buyers will be pushed out of the market if they haven’t been already. The likelihood of it happening is even more of a possibility with another rate hike by the MPC. 

The next MPC meeting is on 5 May and with inflation expected to reach 8% soon, which is 4 times the target rate of 2.0% set by the Bank, another rate hike could be on the way in mere weeks. It might not be the last for the first half of this year.

The market could surprise and retain buyers, but the likely outcome of yet another rate hike could simply cause first time buyers to step back and home movers to stay put. The impact on the economy could be detrimental at a time when the UK housing market has helped so much. There will be much to consider by the MPC in early May, and all eyes will be on the outcome of this next critical meeting.