Explainer-in-brief: January, another month when you can’t afford to buy a home

Over the weekend, I received an innocuous looking email.

“Dear Elena,” wrote a reader, ” I hope you don’t mind me emailing you. Is there any hope for young people buying their own house?”

While I can’t possibly comment on his own individual circumstances, today was not good news: house prices have jumped up again this January. In London, house prices have gone up 0.2 per cent in the last month and 6.1 per cent annually. Nationally, they’ve gone up 0.9 per cent.

This January jump in prices is the highest since before the pandemic. Rightmove has pointed out that these numbers are good news for sellers who have priced correctly, but we can’t say the same for potential buyers.

We all know how unaffordable the housing market – especially in the capital  – is, but these numbers are somehow even bleaker because they come after a faint glimmer of hope. In fact prices were dipping in London at the end of last year, opening up a potential door for many families and individuals who were looking to buy. 

And here we are as they rise again, after interest rates continuously went up impacting mortgages. The rate charged on an average two-year fixed mortgage has doubled over the last year. 

The Bank of England hiked interest rates at all of its last nine meetings in a desperate effort to bring down inflation. Interest rates have gone up from 0.1 per cent to 3.5 per cent, and as they went up mortgages did too. People with a fixed-rate deal that will expire at the end of 2023 are facing an average increase of £250 a month, according to the Bank of England Financial Stability Report.

Now there is a sliver of good news (albeit from a low bar). Mortgages are starting to stabilise after peaking at almost 6 per cent in September last year (for a 2-year fixed mortgage). They’re still much higher, at around 5.3 per cent, but those numbers are on a slow march down. If inflation also continues to fall, as it did at the end of last year, we might return to somewhere in the realm of just-normal unaffordable, rather than the current category of extremely unaffordable. 

According to the property portal, many looking to buy will stay priced out for the first part of the year, but things might take a more positive turn in the second half of 2023.