UK house prices to continue rising even as BOE hikes rates

THE outlook for Britain's housing market has barely changed in the last 3 months despite the Bank of England (BOE) embarking on a cycle of interest rate hikes, a Reuters poll found, although the rise in home prices will lag overall inflation this year.

After slashing the bank rate to a record low 0.10 per cent as the coronavirus pandemic unfolded, the central bank has recently reversed course to lift it to 0.50 per cent.

It is expected to add another 50 basis points by end-June, increasing borrowing costs for home buyers needing a mortgage.

In line with the global trend, UK inflation is soaring with a rise in prices of 5.5 per cent last month the most in nearly 30 years, hitting borrowers' disposable income. Inflation is expected to average 5.2 per cent this year.

"Rising interest rates and cost of living will constrain affordability, limiting house price growth," said Edward Hampson at estate agency Savills.

But with the bank rate only expected to reach a still-historically low 1.00 per cent by mid-year, coupled with a lack of supply, house prices were still expected to rise 4.0 per cent this year and 3.0 per cent next, the Feb 8 - Feb 24 poll of 18 property market experts found.

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Those were broadly unchanged from December predictions.

"If interest rates rise even to the heady levels of 1.00 per cent this year to combat inflation, that's still cheap money and will continue to fuel demand," said independent property analyst Russell Quirk.

When asked how high the bank rate would have to go this year to significantly slow housing market activity the median was 1.50 per cent - a level only 4 of 50 economists forecast it reaching in a separate Reuters poll.

"Interest rate rises during the mortgage term are already priced in to the fixed-term mortgage rates that affect most borrowers, so only rises that are noticeably in excess of market expectations will have much impact," said Mike Scott at online estate agency Yopa.

Asked about the value of national house prices on a scale of 1 to 10 from extremely cheap to extremely expensive, the median response was 7, matching December's estimate. In the capital it was an unchanged 8.

London has always been a magnet for foreign investors but the pandemic, alongside Britain's departure from the European Union, quelled some demand.

Alongside that, office-based employees who have spent nearly 2 years working from home - and are likely to continue to do so even if only for part of the week - have sought to escape the city for larger homes further away from the centre.

House prices in the capital were forecast to rise 2.4 per cent this year, unchanged from December, and 2.3 per cent in 2023 - a downgrade from the 3.0 per cent given in the last poll.

"With hybrid work patterns set to be a permanent fixture, we suspect many households have yet to adjust their housing situation to best suit their new routine," said Andrew Wishart at consultancy Capital Economics.

"As a result, we suspect that the adjustment to remote working has further to run, meaning that the underperformance of London house prices will be sustained." REUTERS