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House prices have gone through the roof over the last two years, increasing by an average of £55,551 in just 24 monthsaccording to Rightmove.

But research from Capital Economics expects prices to fall 5% over the next 2 years, as the Bank of England continues to increase the base rate of interest in a bid to combat rising inflation.

So is now the right time to buy a house?

Why are house prices rising so much?

Despite warnings from the Bank of England back in May 2020 of a potential 16% fall in property prices due to the pandemic, it appears the market has defied the odds: not just surviving but positively thriving.

Both Nationwide and Halifax once a month publish figures on the growth of average house prices:

  • Nationwide’s figures for April 2022 put the average house price at £267,620, up from £265,312 in March. This marks a year on year increase of 12.1%, down from 14.3% in March, so a slight decrease in growth.
  • Halifax figures put average house prices at a new record high of £286,079 in April 2022, up from £282,753. That’s an average increase of 10.8% in the space of just 12 months.

Russell Galley, managing director of Halifax, said limited supply and strong demand are propping up house prices, but the prospect of increasing pressure on households’ finances could cause growth to slow.

The increase in house prices since the onset of the pandemic has been due to:

  • Pent up demand
  • Small supply of houses
  • Desire for more space and rural living
  • low mortgage rates
  • The stamp duty holiday (ended in October 2021)

House sales reached 110,990 in March 2022, according to the latest figures from HMRC. The figure is 36% lower than the same time last year.

Is it cheaper to rent or buy?

In the past, it was usual to rent a home to save money in order to buy a house. But rising rental prices, particularly in big cities, have made that very difficult.

In March 2022, the average monthly rent in the UK was £1,078, according to the Homelet Rental Index. That’s an increase of almost 8.7% over a year.

If you take London out of the equation, the average rent in the UK is now £910, up by 7.4% from March 2021.

Rents have continued to rise to record highs in many areas as workers return to the cities and people wait to buy in over-subscribed, desirable commuter towns.

With that said, mortgage repayments can often be lower than the cost of monthly rent. The problem is that many tenants struggle to save enough for a house deposit to buy because their rents are so high, leaving them stuck in rental properties until they can set enough money aside.

Should I buy a house now or wait?

Some people, especially first time buyers, will be hoping house prices will dip - but no guarantee that will happen.

Some homeowners are holding off selling due to a lack of housing supply, therefore adding to the problem. The scarcity of houses up for sale means buyers often end up in bidding wars to secure a property.

While there is still plenty of uncertainty due to coronavirus, the property market has proven to be very resilient in challenging circumstances.

Interest rates are expected to rise in order to guard against further increases in inflation, but this could dent confidence in the housing market.

If you can afford to buy a home now and you plan to live in it for several years, you should bite the bullet. There is no point in waiting for a drop in prices which may not happen over the next year or so.

Credit: thetimes.co.uk