How long can the housing market continue to defy gravity?

Four consecutive interest rate hikes, a damaging cost-of-living crisis, and the fact that millions of homebuyers are now paying higher stamp duty charges — thanks to ever-rising prices and the removal of previous incentives — might, ordinarily, cause a dampening of buyer demand and a slowdown in purchases.

But there is little evidence that this is happening as estate agents and mortgage brokers report continued enthusiastic demand from buyers across most parts of the market.

Chestertons chief executive Guy Gittins says demand is exceeding levels seen last spring, when buyers were still benefiting from the stamp duty holiday. He says the company saw a spike in buyer enquiries and sales in early March.

It remains to be seen how the cost of living and higher mortgage costs start to feed through. It could dent confidence

“Historically, spring marks the beginning of increased market activity with a surge in properties coming to the market. We expect this to be the case again this year.”

The latest figures from Zoopla show that rising prices over the past two years have pushed around 4.3 million homes into a higher stamp duty band. This is potentially hitting buyers at both the top and bottom ends of the market.

The Zoopla data shows that around 1.2 million homes in England are subject to stamp duty as they are above the £125,000 threshold. A further 360,000 homes in Wales and Scotland have also been pushed into the relevant band where stamp duty starts to apply.

However, London & Country associate director David Hollingworth points out that first-time buyers are, to an extent, protected because they still do not have to pay stamp duty on properties priced up to £300,00 — and only a reduced level up to £500,000. This has helped keep demand from first-time buyers robust, he says, despite rising property prices creating affordability issues.

A dire shortage of properties, particularly family houses with gardens, means a severe correction is unlikely

He adds: “The shift to home working may also have benefited some first-time buyers who may be able to look for housing in cheaper areas.”

But affordability issues could start to weigh more heavily on the market this year.

“Currently, demand is exceeding supply, particularly in key parts of the market. Demand for family homes, for example, means houses continue to be sold above their asking price.

“But it remains to be seen how the cost-of-living bite and higher mortgage costs will start to feed through to the market. This could create affordability issues, which may dent consumer confidence, leading to a reduced level of demand.”

However, Hollingworth thinks sales and price increases will slow rather than go into reverse. He points out that high levels of employment, historically low borrowing costs (even taking into account the latest rate rise) and ongoing supply issues will act as a counterbalance and continue to support the housing market.

House prices may continue to rise in some areas but these rises are likely to be much more modest than we have seen over the past two years

It is this demand-and-supply imbalance that many believe will help the market to continue to grow this year, albeit potentially more slowly.

The Zoopla figures show demand for homes remains at 58% above the five-year average. And repeated government pledges to boost the number of new homes have fallen far short of the total needed to address these demand issues.

Hollingworth says rising prices may encourage more sellers to the market, which may ease price pressures marginally. However, this is unlikely to occur at a sufficient volume to significantly alter the supply/demand dynamics.

Many point out that stamp duty has become less of a hindrance for buyers since it was changed from a slab-tax calculation to a graduating tax. However, higher stamp duty costs combined with higher mortgage costs and the cost-of-living squeeze will act as a brake on demand.

North London estate agent and former chairman of the Royal Institution of Chartered Surveyors Jeremy Leaf believes prices will be pegged back and the combination of these factors will deter buyers.

The shift to home working may have benefited some first-time buyers who may be able to look for housing in cheaper areas

“But it is not all doom and gloom. A dire shortage of properties, particularly family houses with gardens, means a severe correction is unlikely. Nor is even a modest change expected in the short term, but certainly some impact will be felt,” says Leaf.

Carl Summer Financial Services mortgage adviser Scott Taylor-Barr thinks rising living costs will dampen demand. But the market will see a significant slowdown only if mortgage funds become increasingly unavailable.

“This is something we may see as the increased cost-of-living figures filter through the Office for National Statistics data and into lenders’ affordability calculators.”

Although estate agents report that the spring housing market is busier than ever, some brokers say there are early signs of a cooldown. Zoopla’s figures show annual price rises of 8.3% in March, down from 8.8% a month earlier.

Demand for family homes, for example, means houses continue to be sold above their asking price

Your Mortgage Decisions director Dominik Lipnicki says: “Soaring inflation and rising mortgage rates are beginning to price more and more people out of the market.

“While demand remains strong and supply remains limited, house prices may continue to rise in some areas but these rises are likely to be much more modest than we have seen over the past two years.”