Halifax House Price Index: House price growth defies cost-of-living squeeze

“The latest Halifax House Price Index shows that the property market is holding up against the wider economic gloom affecting the country.

“Prices jumped 13% on the year and 1.8% on the month - the 12^th consecutive monthly rise - highlighting an increasing resilience in the market to the cost-of-living crisis.

“However, the market’s insulation from the wider challenges facing the economy can only last so long. Peer closer at the data and price rises appear to be driven by demand from higher earners who are using savings built up during the pandemic to snap up larger properties with detached houses rising in price by almost twice the rate of flats over the past years.

“There is wide expectation that the property market will cool this year and the boom in prices, fuelled by ultra-low interest rates and support packages introduced during the pandemic, will finally come to an end.

“With interest rates on the rise, inflation at 9.1% and still climbing and the wider cost-of-living crisis raising recession fears, it is only natural that the frenetic activity seen in the property sector since the UK emerged from the first lockdown in 2020 will ease back in this high inflation, rising interest rate environment.

“There have been five consecutive interest rate rises from the Bank of England since December last year and with further hikes likely this year, it’s to be expected that prospective buyers reconsider plans to either buy for the first time, upgrade to a bigger home or downsize to a smaller pad for retirement.

“As real incomes are being eroded by runaway price rises, the BoE said in its latest Financial Stability Report that it expects ‘considerable uncertainty’ ahead with GDP set to slow and unemployment to rise in the medium-term.

“The central bank also warned that the potential for persistent inflationary pressures and weaker economic growth could heap further pressure on households at a time when they are already grappling with higher living costs and rising interest rates.

“For new buyers entering the market, speed is of the essence to ensure they lock in the best fixed-rate mortgage deal they can before rates rise further. Even for those at the viewing stage of the buying process, it is still worth securing a deal now as some lenders will hold a deal for up to six months.

“For existing homeowners, the key challenge going forward is making sure they can still afford their mortgage payments when their fixed-rate deal ends.

“The majority of mortgage holders are on a fixed-rate deal, so those nearing the end of an existing contract should lock in a new offer now as again these can be secured up to six months ahead of your current deal expiring.

“Not acting could be a costly move, as the lender will switch the mortgage holder onto their far more expensive Standard Variable Rate (SVR).

“With the BoE saying changes in the economic landscape are already causing banks to adjust mortgage affordability tests to account for expected increases in inflation and interest rates with some lenders targeting those with higher credit scores, it would also be wise to review your credit report to ensure you are still attractive to lenders.

“The Covid-19 pandemic has played havoc with many people’s finances, so reviewing your credit report and score is important as lenders forecast your future financial behaviour based on how you acted in the past. Managing your credit report before you apply for a mortgage could identify actions you could take to improve your creditworthiness.

“Ways to boost your credit rating can be as simple as ensuring you are on the electoral roll, never missing any credit repayments and minimising credit applications.  Making sure your address on all your credit facilities is correct is also key, as is cancelling any unused credit or store cards. In these financially challenging times, it is more important than ever to stay on top of your finances to ensure you can borrow in the most cost-effective way possible.”