UK house prices jump by 13.6%

UK house prices have shot up by 13.6% over the year to August, with the average house price now standing at £296,000, says the Office for National Statistics (ONS).

Buyers paid £296,000 for the average home in August 2022 – £36,000 more than they did the same month in 2021. However, the figure is lower than the 16% increase for the year to July 2022.

The ONS pointed out that the pandemic affected the collection of housing transactions data for some time, so the backlog might continue to inflate estimates to the House Price index.

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The data also does not take into account the turmoil caused by Kwasi Kwarteng’s mini-Budget and the mortgages market, which has sent the average two-year fixed-rate mortgage to a 14-year high of 6.53%, leaving many home buyers wondering if now is a good time to buy a house.

However data from Rightmove’s house price index also shows asking prices increased; the average asking price of a home rose by 0.9% to a new record of £371,158. This might seem surprising given the market uncertainty that followed the mini-Budget, “but it will take time for any impact to filter through to house prices”, Rightmove said.

Could house prices fall?

Growth is definitely slowing when compared to the previous highs we experienced over the last few months.

There’s no doubt the cost-of-living crisis had begun to bite in August, says Karen Note, mortgage expert at wealth manager Quilter. “The turmoil and furore of the mini-Budget and then huge projected mortgage increases has yet to be priced in,” she added.

We know further interest rate rises are on the cards, which means the cost of borrowing will also increase – and potentially deter hopeful buyers.

However the stamp duty cut announced in the now all-but-defunct mini-Budget survived Jeremy Hunt’s cull of Kwarteng’s proposed policies, which could help prevent a major dip in house prices if buyers choose to take advantage of the discount. You can use our stamp duty calculator to figure out how much you will end up paying.

How far those savings would go remains to be seen if mortgage repayments keep rising at the rate they have been so far. “Affording mortgage rates around the 6% mark is no easy feat, so first time buyers won’t be celebrating any time soon,” says Note.

When are interest rates due to rise again?

Interest rates are currently sitting at 2.25%, their highest level since 2008. Analysts have predicted they could rise to as much as 6% next year.

The Monetary Policy Committee will meet on 3 November, so we have around two weeks to wait and the effect this will have on mortgage rates is not likely to be reflected in the data for some time.

Whatever the increase, we can be sure that there will be one – some analysts are forecasting a rise of one percentage point. This will in turn affect mortgage rates, significantly increasing monthly payments.

It will mean good news for savers, however, who will enjoy a higher return on the cash they have stashed away. Providers are likely to pull their best rates off the market quickly, so it’s worth keeping an eye on new deals to make sure you secure the best one.