Houselungo 8 May 22

Published 8th of May, 2022

Is the housing market overheating?

The Halifax released their House Price Index for April 2022 on Friday

What the Halifax said

Average house price £286,079

House prices increased by 1.1% in April

Annual house price inflation 10.8%

Twindig take

The Halifax House Price Index has now increased for 10 months in a row, its longest run of consecutive gains since 2016 as housing transactions and mortgage approvals continue to punch above their pre-pandemic levels.

Either homebuyers are not phased by rising living costs or mortgage rates or they are seeking to move before they start to bite.

There continues to be an imbalance between the supply of homes for sale and demand for homes to buy, which continues to underpin house price growth.

The Halifax point out that if current trends continue house prices could reach £300,000 by the end of the year, but would this make house prices too hot to handle?

Bank Rate reaches 13 year high

The Bank of England increased Bank Rate on Thursday

What the Bank of England said

MPC voted by a majority of 6-3 to increase Bank Rate by 0.25 percentage points, to 1.00%

Those in the minority preferred to increase Bank Rate by 0.5 percentage points, to 1.25%.

The Bank of England's central projections implied a path for Bank Rate that rises to around 2½% by mid-2023

Twindig take

The Bank of England sets monetary policy to meet a 2% inflation target. The 12-month Consumer Price Inflation (CPI) rate rose to 7.0% in March 2022, which was around one percentage point higher than the Bank of England had expected in February 2022.

The strength of inflation at 7.0% relative to the Bank of England's target of 2.0%, therefore, led to an increase in Bank Rate today.

The Bank of England's central projections implies that Bank Rate is currently on a path to reach 2.5% by mid-2023.

Mortgage approvals firm

The Bank of England released the mortgage approval data for March 2022 this week.

What they said

Mortgage approvals for March 2022 were 70,691

This was 0.4% lower than the 70,968 mortgages approved in February 2022

This was 14.5% lower than the 82,717 mortgages approved during March 2021

Twindig take

Mortgage approvals were just 277 fewer in March 2022 than in February 2022, and March's approvals are 7% ahead of the ten year average of 66,810. The mortgage market, and therefore by proxy the UK housing market, remains in fine fettle.

Rising mortgage rates and rising living costs have yet to dampen homebuyers' homebuying appetites. Whilst we might only be at the foothills of the inflation and mortgage rate ascendancy, there has been no knee jerk reaction to the threat of rising costs. This is a good sign because as we can see in the graph above, the level of mortgage approvals can be volatile if something spooks the housing market. Perhaps because asset prices tend to rise during a period of inflation, and houses are a rather prized asset.

Mortgage rates on the rise

The latest data from the Bank of England revealed that overall average mortgage rates for new business increased significantly in March 2022.

What they said

The average floating mortgage rate for new business 1.89%
The average fixed mortgage rate for new business 1.73%
The average overall mortgage rate for new business 1.74%

Twindig take

The graph above says it all really, 'hold on to your hats, mortgage rates are going up!'

Average mortgage rates for new business (those mortgages agreed during March) increased at a faster rate than they did during the early stages of the COVID-19 pandemic.

Should we be worried at the pace of mortgage rate rises?

The graph above says it all really, 'hold on to your hats, mortgage rates are going up!'

Average mortgage rates for new business (those mortgages agreed during March) increased at a faster rate than they did during the early stages of the COVID-19 pandemic.

In our view, the increases in average mortgage rates are more a reflection of the recent hikes in Bank Rate than lender's concerns about the near or medium-term future of the UK housing market. The Bank of England's Bank Rate sets the tone for all other interest rates and as Bank Rate rises from historic lows, it is inevitable that mortgage rates will follow.

Twindig Housing Market Index

The Twindig Housing Market Index moved in the opposite direction of the underlying housing market this week. Perhaps a case of housing market investors heeding Warren Buffett's advice to 'Be fearful when others are greedy. Be greedy when others are fearful'. As house prices reached another, mortgage approvals held firm and housebuilder Barratt built even more homes, the Twindig Housing Market Index fell 3.0% to 75.3, its lowest level since 6 November 2020.

The Halifax reported that house prices rose in April for the 10th month in a row and that the monthly rate of house price inflation over the last year has been more than double the monthly rate of inflation over the last decade, leading some to ask if the UK housing market is overheating?

Housing Hailey

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