In relative terms, however, the increase is substantial, even if it comes from such a weak base that the various increases in mortgage payments that will inevitably follow should not put a carriage and horses on household budgets.
More worryingly, this increase may just be the start of a trend, with further increases likely in 2022; if this is true, by next summer some mortgage owners could be paying a lot more than they are now.
Some say the last thing an economy emerges from the effects of a two-year pandemic needs higher interest rates, but the Bank of England seems genuinely concerned about the rate of inflation (up to 6% was planned) and clearly nipping it in the bud is considered of equal importance.
There are several reasons for the current surge in inflation, including higher wages caused by staff shortages and supply and distribution issues raising the price of various commodities. These problems in themselves are not insurmountable and may be temporary, but even so, 2022 could be a difficult time, especially once the “cap” on energy prices is reconsidered in the spring. It therefore seems inevitable that a combination of more expensive mortgages and a general rise in the cost of living will have a negative impact on the housing market.
For the majority of homeowners who have no plans to move in the next 12 months, it will simply be a matter of closing the hatches and going all the way. However, those for whom family, financial or professional circumstances require or suggest a new abode, will need patience, confidence and, perhaps most important of all, to face the “new realism”.
Over the past 18 months, most homeowners – whether moving or not – have seen a remarkable increase in the value of their asset class, which has baffled the markets given the disaster warnings at the start of the market. pandemic in March 2020.
However, as 2008 – and earlier periods which can now only be recalled by older readers – made it clear that only two, exponential increases in house prices are not inevitable. While the historical trend is still up, values drop from time to time which can leave any owner trying to sell during such a problem naturally feel cheated.
Therefore, I am concerned that an upcoming slowdown in the housing market may be compounded by people’s unrealistic expectations for the value of their properties in 2022 compared to 2021.
Take the example of a house that was valued at £ 400,000 in the summer of this year. The owner decides to put it on sale in May or June of next year and hopes to fetch a price at least as high as the previous valuation. And no matter what the Home Report recommends, it will stubbornly stick to that number, although market conditions have changed dramatically over the next 12 months. The result is no sale and, of course, no subsequent purchase of a replacement property. If this example is repeated often enough, you will start to see a localized traffic jam in the market.
In these circumstances, suppliers will need to have the bigger picture. Because everyone is in the same boat, selling and buying in a bull market go hand in hand, in which case any excess surplus from the sale is reduced by the additional cost of the replacement good. In a flatter market, the same principle applies, but the other way around: you may have to sell for a lower price, but the property you buy is likely to be more affordable.
Therefore, those planning to move into a more difficult year 2022 (either out of necessity or just because they want to change) should ask themselves one vital question: not what will I get for my current home, but how much, in net terms, will it cost to move to a new one?
Finding the right answer should result in a relatively worry-free transaction – no matter what else happens to the economy at large.
David Alexander is Managing Director of DJ Alexander.