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Tenants saving to buy are ‘running to stand still’ says analyst

Private renters who are trying to save a deposit on a home to buy are having to run in order to stand still, a business analyst warns.

Hargreaves Lansdown analyst Sarah Coles makes her comment following the latest Halifax house price index, which shows house prices on average across the UK rose 1.4 per cent in March - the largest single-month rise for six months - and the average UK house price is now £282,753.

Coles says: “For anyone saving to get a place of their own, this means you’re having to run to stand still. If you’re trying to get a 10 per cent deposit together, you would have had to save £2,811 more just to be in the same position you were a year earlier. At times like this it’s worth getting any help you can, and for those aged 18-39, saving to buy their first property, who have a year until they plan to do so, a Lifetime ISA can help enormously.”

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She continues: “Runaway house prices are also causing problems for second steppers, because the price of houses is stretching way ahead of flats. The average price of a flat is up just £15,404 in a year while the average detached house rose in price by £77,717. It means it takes an enormous stretch to get from one to the other.”

Coles warns that the housing sales market - although apparently flying - may come down to earth with a bump as a result of the war in Ukraine and the cost of living crisis this year. Implicitly, this suggests demand for rental property may remain very high for the foreseeable future.

“Right now may well not be a sensible time to stretch yourself. While prices are still rising robustly right now, there’s every chance that soaring bills and rising interest rates will take their toll in the coming months. 

“And quite aside from whether or not on paper your home continues to gain value, there’s the question of what you can afford. You need to ask yourself whether now is the time to be taking on a bigger, more expensive loan, when the price of everything else is going through the roof, and tax hikes are shrinking your pay packet.”

Another analyst - Charlotte Nixon, of wealth management firm Quilter - adds that interest rates are likely to rise further, making affordability a bigger problem for current renters considering buying.

She says: “The current circumstances are expected to put the brakes on runaway house prices. The situation in Ukraine remains unstable and the cost of living crisis is being felt increasingly by the day, particularly as the energy price cap and national insurance increase have both now come into play. Given the increased financial instability, first time buyers and prospective home movers will likely think twice before embarking on the expensive process of buying a new home.

“What’s more, the Bank of England is expected to increase interest rates further, which will further reduce people’s spending power. Prior to the outbreak of war in Ukraine, inflation was expected to peak at 7.25 per cent, this is now likely to be considerably higher and the only way to combat it is with increased rates. Should this happen, the already dwindling number of cheap mortgage rates will quickly disappear and monthly costs will see a swift increase. Should less people look to move home as a result, the cost of house prices may finally start to see a slowdown.

“Over the next few months we will see how the housing market truly reacts to the current circumstances, but it is unlikely house prices will continue rising at the same pace seen in recent times. If we do see a slowdown, there will likely be a gradual fall as opposed to a sudden drop as there remains simply too much demand and too little stock which will keep house prices raised for some time yet.”

Want to comment on this story? If so...if any post is considered to victimise, harass, degrade or intimidate an individual or group of individuals on any basis, then the post may be deleted and the individual immediately banned from posting in future.

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    An article which states the absolute obvious...... if your direct debit for gas/electric goes from £150 a month to £400 a month then yes it may concern the home owner somewhat ! And let us not forget we have another increase in October and then we shorten the next review of the Cap to Jan 2023....... i can see a few of the recent lemmings regretting their £40k over the asking price offer. Fun times ahead i feel.

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    I use Haregreaves Landsown but thier advicce seems very poor, often seems to "go with the flow", rather than being perceptivve.. good website though.

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    I moved to Vanguard for the lower fees and find my own judgements outperform Hargreaves Lansdown.

    Reading recent statements from them on here makes me realise why

     
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    I've done the same Robert

     
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    I've lost 3 sets of good tenants over the past year who have bought, sorry to see all of them go but pleased for them at the same time, so it can be done with a bit of hard work and saving rather than spending

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    So much hype I don’t believe there is at shortage of stock and far too many over priced Flats being built because of stupid Schemes. Where are people living now and if they move their previous property will be available. Media, computers, multiple new organisations have sprouted on the back of housing to carve out a fat living for themselves, in many cases calling all the shots. Just because property is selling at a higher price doesn’t mean there a shortage of stock more like hysteria. Last year I was paying £1.05 for 4 pints of milk now £1.55 but I do see so shortage of milk. Ukraine war is certainly affecting the economy of us all regardless of who we are. I expect a recession coming as many times before.

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    I expect a recession is coming, in past recessions I've always done well buying and building after all when do you invest in the stock market ? not when prices are high

     
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    I don’t see any shortage of milk this mini phone likes to change what I say !

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    Spell check can be a pain on phones mine once changed a tenant's name to Dimwit, luckily I spotted it before I sent the message.

     
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    My phone thinks it's better at grammar and spelling than I am.

    It's probably because it's a lot younger than me as I find the same with younger people!

     
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    Yes but Robert didn't you gain a degree in english in the days when a degree really meant something, unlike the degrees of today

     
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