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Interest rate rise may be put off despite another house price record

Increasing numbers of commentators are forecasting that the Bank of England will not, after all, raise the base rate next week.

It was considered a near certainty that the BoE’s monetary policy committee would agree a rise, because of the growing inflation in the wider economy and to take some steam out of the housing market.

However, despite more high price figures recorded by the latest Halifax index, it now seems many pundits believe an interest rate rise will be put off until New Year. 

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The latest Halifax data shows house prices have once again continued to rise over the past month, with November seeing a new average house price record of £272,992. Not only is this a new record price, but on a rolling quarterly basis, growth has reached a fifteen-year high with an uptick of 3.4 per cent.

“At this stage, two months post stamp duty holiday withdrawal, it was hoped we might finally see a downtick in house prices. The still rising prices demonstrates that while the scheme did have an impact on house prices, it was not the only driver. The race for space appears to still be going strong, and when combined with the current demand outweighing supply, prices are still being pushed higher” explains Karen Noye, mortgage expert at wealth management consultancy Quilter.

“Interest rates will be key over the coming months, and an increase would push mortgage rates up which will likely put potential buyers off. However, the new Omicron variant may throw a spanner in the works of any major changes planned by the Bank of England, meaning we are unlikely to see a rate rise yet. While that may be the case, rock bottom mortgage rates are likely to creep up as an interest rate rise is still anticipated, it is just a question of when.

“Those waiting out the housing market boom in hopes of lower prices will likely have to wait a while longer yet. Regardless of whether house prices begin to drop, the likely increase in mortgage rates will contribute further towards the unaffordability of homeownership.”

The Halifax says house prices rose 8.2 per cent compared to November last year and 1.0 per cent against the previous month, October. 

Quarterly house price inflation is now at its strongest level since 2006, with 3.4 per cent growth.

“This is the fifth straight month that average house prices have risen, with typical values up by almost £13,000 since June, and more than £20,000 since this time last year” says Russell Galley, managing director of Halifax.

“Since the onset of the pandemic in March 2020, and the UK first entering lockdown, house prices have risen by £33,816, which equates to £1,691 per month.”

Looking ahead, Galley says there is now greater uncertainty than has been the case for quite some time, with interest rates expected to rise to guard against further increases in inflation.

“Economic confidence may be also be dented by the emergence of the new Omicron virus variant, though it remains far too early to speculate on any long-term impact, given insufficient data at this stage, not to mention the resilience the housing market has already shown in challenging circumstances" he suggests. 

“Leaving aside the direct impact of a possible resurgence in the pandemic for now, we would not expect the current level of house price growth to be sustained next year given that house price to income ratios are already historically high, and household budgets are only likely to come under greater pressure in the coming months."

  • Matt Faizey

    Anybody expecting a December rate rise might wish to research the last time a rate rise happened in this month. Moreover how often rates have been increased in December over the last, say hundred years....

  • Lenny White

    ...and as for house price increase, this is basic, day 1 economics. The SDT holiday brought forward a huge percentage of future sellers, leaving the market short of normal vendors & a scewed market. This will level out as time moves, so supply will come back into line with demand - panic ye not, and thanks as ever to Gov.UK for its infinite wisdom

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