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As house price frenzy breaks all the rules, can the rises go on - or is the market about to overheat?



Most economic textbooks I read many moons ago at university talked about an intrinsic link between a country's economy and house prices. 

In simple terms, when an economy is in growth mode, house prices rise. Conversely, when an economy goes into shrink mode, they fall. 

It's a rule that until last year had stood the test of time remarkably well. Since the new millennium, for example, the only time house prices had fallen sharply was in the wake of the global financial crisis of 2008 which sent the economy into a tailspin. 

But like many financial conventions, it has unravelled in the wake of the pandemic, the country's lurch into lockdown and near economic implosion. Spectacularly so. 



Like the stock market, house prices have refused to succumb to the carnage wreaked on the UK economy by coronavirus and lockdown. 

Not only have they defied the laws of economics, but astonishingly, they have also defied gravity and surged to record levels. In a nutshell, the housing market is in boom mode and experts believe the boom is far from over. 

Great news for homeowners, great news for the country, but tougher news for first-time buyers desperate to get a foothold on the property ladder. 

The market's rude good health was confirmed last week by Halifax when it released its latest house price data. According to the bank, house prices rose 8.2 per cent in the year to the end of last month, pushing the average price to a record 258,204. 

Almost 20,000, it said, has been added to the value of the average home since April 2020 when the market ground to a halt in the wake of lockdown. 

House prices, it added, are currently rising at their fastest annual rate for five years with all regions witnessing growth although the increases are uneven. 

So, at one end of the spectrum, double-digit annual increases in Wales and at the other just two per cent growth in Greater London (see map opposite). Over the past five years, house prices have grown regionally between 6.2 per cent (in Greater London) and 30.8 per cent (in Wales). 

'This time last year, no one could have foreseen such strong growth in house prices with the country in the grip of the pandemic,' Halifax's Russell Galley told me on Friday. 

Reassuringly, the bank's managing director went on to say that its property experts expect 'prices to remain resilient in the medium to long term'. In other words, not a correction in sight, despite some concerns that the housing market is in danger of overheating. More hot than cold property spots. 

Indeed, if you take a peek at website theadvisory. and type in a postcode, you can discover whether the local property market is hot (a seller's market) or cold (a buyer's market). For the record, the website's supporting map of England and Wales is a sea of orange, denoting the market is on fire. 

Galley's positive view on the housing market is not an isolated one. 

Economists at both Nationwide Building Society and think-tank Capital Economics believe that for the foreseeable future, house prices will continue to rise. 

Andrew Wishart, property economist at Capital Economics, says house price inflation will average 3 per cent per annum between now and the end of 2024 though he says this is dependent on interest rates staying at rock bottom. 

Last week TSB launched a two-year fixed rate deal at 0.99%. 'Rises in interest rates and mortgage rates can be a trigger for a housing market price correction,' Wishart says.

 'So without such increases, which are unlikely until 2025 at the earliest, we see no reason why the market should correct. Having said that, annual house price inflation of eight per cent is unsustainable.' 

Capital Economics' forecasts suggest house price growth across all regions this year, and in 2022 and 2023. However, Robert Gardner, Nationwide's chief economist, is a little more cautious. 

He says that annual price rises are likely to move into double- digit territory in the next couple of months a function primarily of the falls recorded in the early months of the pandemic last year. 

Although he believes house prices will continue to rise for the remainder of the year, growth beyond the end of 2021 will depend very much on the health of the employment market. 

'The Government's furlough scheme has been brilliant in supporting the labour market,' he says. 'But that will come to an end on September 30. It will then be a question of how resilient the labour market is. Will unemployment spike? If so, that could impact adversely on the housing market, slowing activity sharply. 

'Or will any increase in unemployment be limited by a steep recovery in the economy? If so, that would augur well for house prices. 

'The trouble is that it's extremely difficult to predict which outcome will prevail. So the longer term outlook is one tinged with uncertainty.'


The housing market's current buoyancy is a result of a mish-mash of inter-linked factors. 

1) There remains strong consumer confidence in housing as a financial asset. This stems from political certainty a Government with a thumping majority and one which believes passionately in home ownership. The lancing of the boil that was Brexit has also helped eradicate a huge dollop of uncertainty surrounding the country's future.

2) Government measures to protect homeowners and workers from the financial fallout caused by the pandemic have proved effective, preventing a surge in home repossessions. 

These measures include the furlough scheme and instructing banks and building societies (via the Bank of England) to grant payment holidays to borrowers struggling to pay their mortgage. 

Only last week, Chancellor of the Exchequer Rishi Sunak said that some two million fewer people would now lose their jobs as a result of Government intervention to protect workers' incomes. 

More recently, the Government has also intervened to ensure that first-time borrowers have greater access to 95 per cent mortgages. 

Flexible: Caroline Manson secured a better deal on her Dorset home and can repay early

Flexible: Caroline Manson secured a better deal on her Dorset home and can repay early


While the housing market may look frothy, mortgage rates remain exceptionally low. 

It means home movers can fund any new purchase with cheap mortgage finance, especially if they have equity in their current home that they can use to fund a deposit. 

David Hollingworth, of L&C Mortgages, says fixed rate mortgages 'dominate the popularity stakes' because of the payment certainty they provide. Best deals range from 1.24 per cent (HSBC) for a rate fixed until the end of August 2026 with a maximum loan-to-value of 60 per cent to 1.95 per cent for a rate fixed until October 2031 from Virgin Money (again at a maximum loan-to-value of 60 per cent). 

Someone purchasing a 240,000 property would pay a monthly sum on a 25-year repayment loan of 558.48 and 606.85 respectively. 

This assumes a 96,000 deposit and a loan of 144,000. Both loans come with arrangement fees of 999. 

However, grabbing a cheap mortgage should not be the preserve of movers. 

Those happy to stay where they are should also ensure their mortgage remains fit for purpose, especially if they have a large chunk of equity in their home. 

Caroline Manson is a chartered physiotherapist. She and her husband Tom, a Commodore in the Royal Navy, have just remortgaged their five-bedroom house near Dorchester, in Dorset, which is valued at about 1million. 

As a result, the couple have locked into a lower payment rate 1.24 per cent fixed with Barclays as opposed to the 1.41 per cent variable they were paying previously.

They also now have certainty over what they will pay for the next five years. 

Caroline, 55, and 53-year-old Tom used L&C Mortgages to get them the best deal. 

'We now know what our major household expense will be and that is key for us,' says Caroline. 'The new loan also allows us to pay off 10 per cent of the debt every year and that is what we intend to do.' 

The remortgage came with an 899 arrangement fee although this cost was largely mitigated by a free valuation and a 250 cashback upon completion. 

One word of warning. Hollingworth says that those home-owners whose income has been adversely affected by the pandemic may struggle to remortgage to a new lender. Their best route, says Hollingworth, is to see what alternative deals their existing lender may be prepared to offer. 

3) Changing work patterns as a result of lockdown, forcing many people to work from home, have also helped sustain interest in the housing market. 

Many homeowners have taken a hard and long look at whether they need to continue living so close to their place of work. Some have taken decisive action, moving further away, often into rural locations. 

Data collated by Nationwide indicates that a quarter of recent movers or wannabe movers have been sparked into such action by the pandemic. 

According to Capital Economics, house price growth over the past year has tended to be strongest in rural areas than in cities (inner or outer) or outlying towns. 

4) Rock-bottom mortgage rates, helped of course by the cuts to the Bank of England's base rate in the run-up to the first lockdown in March last year from 0.75 to 0.25 and then to 0.1 per cent have also contributed to the housing market's rude good health. 

Although these interest rate reductions have not been mirrored by corresponding cuts in mortgage rates, affordability has not become an issue with many homeowners slowly amassing more equity in their properties. 

Cheap mortgage finance has put them in a powerful position to move if they so desire or to stay put and take advantage of low-cost mortgage finance to switch to a cheaper deal (as Caroline Manson, pictured opposite, has just done). 

Affordability, surprisingly, is also not a big issue for many first-time buyers. 

Nationwide's Gardner says that affordability levels for first-time buyers remain below the long-term average with payments absorbing 31.7 per cent of take home pay, compared to an historic average of 33.1 per cent. 

It is obtaining a home deposit that remains the main issue for first-timers although Gardner says the proliferation of 95 per cent mortgages and the healthy 'Bank of Mum and Dad' - inflated by lockdown savings of 200billion - should help many get a step on the housing ladder.

5) And, of course, the Government's decision to waive stamp duty costs for many house buyers a scheme extended in the March Budget (for England and Northern Ireland until the end of June) has helped fuel demand for properties. 

In light of all these positive forces, it is no wonder that estate agents up and down the country are saying that they are snowed under with enquiries from buyers.


Jo Eccles, founder of property advisory service Eccord, says: 'Houses are being snapped up before most buyers get a chance to see them. 

'We're witnessing pent-up demand from the last five years. There was Brexit uncertainty, a General Election and then Covid. Now, buyers are saying: 'Life is too short, we can't delay any longer. Enough is enough.' 

Demand: Michelle Caulfield had queues of buyers in Harlow, Essex

Demand: Michelle Caulfield had queues of buyers in Harlow, Essex

She adds: 'Low interest rates are helping because people can borrow cheaply while the threat of stamp duty rates returning to normal at the end of September [in England and Northern Ireland] means some people are stretching themselves to buy big. 

'Where once they might have bought somewhere they hoped to be staying in for the next five to ten years, now they are looking to live there for twice as long.' 

In Harlow, Essex, estate agent Howick & Brooker says business has never been better. The property market is benefiting from the town's closeness to London (just 20 miles south) and the fact that homes can still be bought without breaking the bank a first-time buyer's flat can be bought for under 200,000. 

Partner Alan Howick says: 'I have been selling homes in Harlow since 1975, but I have never seen anything to match what is happening in the market now. If we list a new property, we immediately receive dozens of calls.' Michelle Caulfield has just sold her parents' home in Harlow after the death of her mother. The 51-year-old business manager had a queue of people wanting to buy the three-bedroom home and she could have got more than the 237,000 that she finally accepted. 

But she was more interested in selling to a buyer she liked and trusted. 

'I am afraid to say that buying and selling homes can bring out the worst in people. I wanted to bring out the best. I owed it to my parents to do the right thing.' 

When the new owners moved in, she left a bottle of champagne in the fridge as a 'welcome to your new home' present.

In Tonbridge, Kent, Lisa Hermitage, of estate agent Waghorn & Company, says the town has always been a popular destination for families especially where the main breadwinner works in London and can take advantage of the good train links into the City. 

The town, she says, also has a reputation for great schools. 

But in recent months she says the local market has also been buoyed by first-time buyers mostly young professionals looking to buy apartments that they can also work from and funded by the savings they have made during lockdown. 

'Demand for two and three-bedroom apartments costing between 250,000 and 300,000 is at a premium,' she says. 

Edward Heaton, founder and managing partner at national estate agent Heaton & Partners, says the 'race to the countryside' is very much in evidence. 

Heaton says that the property markets in Berkshire, Buckinghamshire and Oxfordshire have 'never been so hot'. 

He adds: 'One of the greatest advantages of Hambleden Valley in South Buckinghamshire and the Chilterns, compared to other beautiful places such as the Cotswolds, are their accessibility. 

'The much shorter journey times to London now open up the housing market to more families, not just second homeowners.' 

Heaton says: 'Maybe, after decades of cities being overpopulated, now is the time for our great countryside to be there not just for wealthy landowners and farmers.' 


If you are looking to buy or sell in the coming months, there are things you can do to ensure you get the best value from any transaction. 

For SELLERS, key is choosing an estate agent that knows the local market inside out. 

Nathan Emerson, chief executive of homes specialist Propertymark, says: 'Look for an agent who is on top of current house prices and who is acutely aware of trends for example, new buyers coming in from else where with money to spend, pushing up prices further.' 

Sellers should also ensure their estate agent uses all the tools available to market their home everything from online portals used to list properties, mailing lists to prospective buyers, and social media. Some agents will now put together online 3D home tours for interested buyers and even make available drone footage.

It also helps massively if a seller already has plans in place as to where they hope to move to. 

'Many buyers are not likely to put up with long transaction times,' says Emerson. 'If a seller is ready to move, it can help with negotiations.'

For BUYERS, you need to put yourself in the best position possible if your offer for a property is accepted. That means having a mortgage lined up if you are not a cash buyer. 

David Hollingworth, of L&C Mortgages, says: 'With the market still moving at pace, buyers need to do everything they can to ensure their offer is successful. 

'That means being in a proceedable position and understanding what mortgage borrowing is available to them so they know how much they can offer.' 

Personal credit checks should also be carried out, just in case there are any issues lurking in the dark that could stall a mortgage application. 

Documentation such as payslips, P60 forms (detailing your annual salary) and accounts (if self-employed) will need to be seen by any lender. 

Crucially, and finally, don't get caught up in all the current property hype. 

Emerson says: 'Buy for the long term. House prices cannot rise forever, so you have to be aware that you may not be able to sell anything you buy now in a year or two and make a profit. 

'Make sure you are buying for the medium or long term. Don't get carried away.' 

                                         Additional reporting by Rachel Rickard Straus and Toby Walne

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