Rising cost of living sees housing sentiment decline

Posted on Monday, March 21, 2022

Double-digit house price growth, rising interest rates, and the escalating cost of living have seen a decline in housing market sentiment with just 18% of people thinking now is a good time to buy a property.

This is the lowest figure seen since the height of the financial crisis in 2008.

The data, which comes from the latest Property Tracker Report from the Building Societies Association, also highlights that 48% say affordability of monthly mortgage repayments is a barrier to buying a property, a significant increase from 39% just three months ago.

Rising cost of living

Consumers have been experiencing price rises for some time. However, many are aware that there is more pressure to come as the energy price cap increases next month and higher national insurance payments will come into effect at the same time.

It’s therefore not surprising that 65% said they are worried about the rising price of goods and services over the next six months and many are taking action. 48% said they will cut their energy use and the same proportion (48%) say they will spend less on purchases they consider non-essential because their cost of living has increased.

More worryingly 33% say will be spending less on essential purchases, such as food. And of those trying to buy their first home, 30% say they will work more hours or find a new job over the next six months because their cost of living has increased.

17% will be depending on savings to cover the increase in living costs, while 41% will be shopping around to save money.

After two years of living with the Covid-19 pandemic, it’s probably not surprising that just 21% are considering postponing a holiday to help cover the increasing living costs.

Mortgage payments

It’s encouraging that the majority of those with an existing mortgage (90%) say they are confident they will be able to meet their regular mortgage payments over the next six months (92% - Mar 21), compared to less than 2 in a 100 (1.8%) who are not at all confident (1.2% - Mar 21). This is probably due to 81% of all UK mortgages being on a fixed rate and therefore protected, for a period, from rising interest rates.

It’s a different story for those trying to get a foot on the housing ladder, with mortgage payments as a share of take-home pay higher now than the long-run average, despite relatively low mortgage interest rates. Raising a deposit continues to be the biggest barrier to buying a home with 59% citing this, an increase from 55% in December.

House prices

Despite the significant growth in house prices in the last 12 months, 48% think prices will continue to rise over the next year (45% - Dec 21). Some, however, expect future house prices to fall, with 12% thinking this is likely in the next 12 months (13% - Dec 21). 14% said concerns about future falls in house prices was a barrier to buying a property.

Paul Broadhead, Head of Mortgage and Housing Policy at the BSA, said: “The Property Tracker Report is a useful temperature check on how consumers are feeling about the property market. It’s good to see that despite being in a rising interest rate environment, the majority of mortgage holders remain confident that they will be able to continue to make their mortgage payments.

“However, the increase in the number of people citing mortgage affordability as a barrier to buying a home is likely to continue if we continue to see high demand and low supply in the housing market. Price growth at the current pace is clearly unsustainable and a much higher volume of new build and resale homes coming to market is needed to change this dynamic. Whilst lenders expect some flattening of new mortgage demand as the year progresses, we anticipate that the re-mortgage market will remain buoyant.

“As we all experience the impact of the rising cost of living, and watch the how the Russian invasion of Ukraine and the consequent sanctions are affecting energy prices, it’s not surprising that many are feeling worried about making their budgets stretch and considering changes they can make.

“During the pandemic, overall savings balances increased by almost £300 billion so it is not surprising that some people are now planning to use this buffer to help cover their increased costs.

“The growth in savings balances was not however evenly distributed, and there are many households who struggled financially during the pandemic. The FCA’s Financial Lives Survey showed 13% of adults have no savings whatsoever and a further 32% have less than £2,000. For these families and individuals spending less on energy, food and fuel may not be enough and we hope the Chancellor will announce additional support for these households, as currently, their outlook is very troubling.”



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