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House Prices Still on the Rise

Following the trend that started in the last quarter of last, house prices are continuing to have a strong showing, with them gaining another 1.1 percent during the month of March on average, firming up the belief that the recovery in the market is sustainable following a flat month in February.

This increase has pushed the average house price up to £162,083, pushing the year-on-year rise to 5.3 percent – the largest increase since the May of last year. A strong housing market is something of a double-edged sword, on the positive side a rising market increases homeowners’ wealth, albeit wealth that is tied up in their property. For new buyers who have got into the market before the rise started it is very good news as their loan to value ratio will improve, putting them in a stronger financial situation.

A negative side can definitely be felt by those waiting to get onto the property ladder, as all the while house prices rise above the rate of inflation, and their salaries, they become further and further out of reach.

Rising house prices don’t only have the effects described above, but they also have a much wider influence on the economy as a whole, as they are given a great deal of importance by the Monetary Policy Committee, who are responsible for setting the base interest rates. When the demand in the housing market is strong, the MPC looks to keep interest rates at a higher level, as lowering them reduces the cost of borrowing and can lead to a housing boom, which prices many people out of the market and generally is followed by a crash that leaves people in negative equity.

This news that the housing market is continuing to do well, with house prices increasing as the have during the first quarter of this year, means that we are less likely to see a cut in interest rates in the short term, despite the fact that many in the retail sector would very much like to see just that.