Cost of living crisis to shut the door on bumper UK house price rises: Reuters poll

© Reuters. FILE PHOTO: Property estate agent sales and letting signs are seen outside an apartment building in Lichfield, Britain, May 3, 2022. REUTERS/Andrew Boyers

By Jonathan Cable

LONDON (Reuters) - British home prices will rise further over the next few years but a cost of living crisis coupled with increasing mortgage rates will keep the pace in check, a Reuters poll of housing market experts found.

The Bank of England was the first major central bank to raise interest rates, taking Bank Rate from a pandemic-era low of 0.10% to 1.00% since December, and it is widely expected to do more soon. [ECILT/GB]

When asked what interest rate would cause a significant slowdown in activity, the median was 3.00%, but according to a separate Reuters poll of economists it will only reach 1.75% next year.

"We expect a rise in Bank Rate to 3% to cause a 5% drop in prices and a slump in transactions. But a rise in Bank Rate to 2.5% would probably be sufficient for prices to stagnate and transactions to slow," said Andrew Wishart at Capital Economics.

Britons are facing a cost of living crisis as renewed COVID lockdowns in China and Russia's invasion of Ukraine have disrupted supply chains that were only just beginning to heal after the pandemic, sending global inflation skyrocketing.

They are also reeling from an April 54% increase in energy prices - which the BoE thinks will go up another 40% in October - as well as higher taxes.

"The post-pandemic surge in buyer activity is now beginning to peter out in response to rising interest rates and cost of living, but low stock levels mean that it has enough momentum to keep going at a slower rate into the first half of next year," said Mike Scott at estate agency Yopa.

Medians in the May 11-20 poll suggested home prices would increase 6.5% this year, 2.9% next year and 3.0% in 2024. In a February poll those forecasts were 4.0%, 3.0% and 3.0%.

But that will lag general inflation, which was a 40-year high of 9.0% in April. Earlier this month the BoE said it could be more than 10% later this year.

In London, long a Mecca for foreign investors, prices were expected to rise 5.0% this year, 3.1% in 2023 and 4.0% the year after. That was an increase from the respective 2.4%, 2.3% and 3.8% predicted in February.

"Due to wider international demand, especially, London will outperform the UK national market in 2023 and in 2024," said Tony Williams at Building Value.

The average price of a home nationwide was 360,101 pounds ($448,974) in April, according to property website Rightmove (OTC:RTMVY), and the average asked from a first time buyer was 220,466 pounds.

That level makes it difficult for people trying to get on the property ladder as most mortgage lenders require a 10% deposit.

When asked what would happen to affordability for first time buyers over the next two years, nine said it would worsen - including two who said it would significantly worsen - and only three said it would improve.

And to make it harder for those who can't get the funds together to purchase their first home, eight of nine respondents said affordability in the rental market would worsen in the next two years and only one said it would improve.

"First time buyers will continue to struggle so long as prices continue to rise. Some landlords have had enough and are exiting the sector," said property market consultant Henry Pryor.

($1 = 0.8021 pounds)

(For other stories from the Reuters quarterly housing market polls:)