interactive investor comments on the ONS House Price Index

Huge jump in house prices doesn’t tell us where prices are heading amid mortgage affordability squeeze.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The huge jump in house prices in July shows the extent in which the stamp duty holiday turbocharged the housing market after virtually grinding to a halt during the pandemic. But it doesn’t tell us where prices are heading.

“Mortgage affordability is becoming a growing thorn in prospective buyers’ side. The window for cheap mortgages is rapidly closing, with rates returning to levels we haven’t seen in a while and will continue to do so with further rises in interest rates on the horizon.

“Prospective homebuyers’ attempts to stretch their budgets to purchase a property are increasingly being thwarted by the cost-of-living crisis, with inflation hitting 9.9% in August and is expected to rise further once the heightened energy price cap comes into effect in October. 

"The rising cost of rent is makes it harder for first-time buyers to save for a property. Rents paid by private tenants have risen at their largest annual rate for more than six years, up 3.4% in the year August 2022. As demand continues to outstrip supply, there could be further upward pressure on rents.

“Many first-time buyers will have little option but to give up on their dream of home ownership for the time being. However, the affordability considerations are likely to act as a brake on large house price rises. A slowdown rather than a property market crash appears more likely because there is too much of an imbalance between supply and demand for homes.”