Why is it so hard to buy a house?

It doesn’t seem fair, does it, if you're desperate to buy a house? Not only did house prices grow by the same amount as a decent salary over the last year, but even at that price many are being snapped up as soon as they come to market.

Yes, you did read that correctly. The latest house prices analysis from Nationwide shows that the cost of a typical home in the UK rose by £29,162 over the last 12 months alone, the same or more as many people’s annual salary.

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The typical home now costs £260,000. And those rocketing prices come despite the rising cost of borrowing. The Bank of England has begun to raise interest rates, meaning the cost of mortgages are also rising.

Yet despite that, houses are flying off the figurative shelves. Research from OnTheMarket shows that 61% of properties being advertised for sale are sold subject to contract within 30 days.

Talk to anyone who has tried to buy a home recently and they will tell you the most desirable properties are being snapped up often as soon as they are advertised, before would-be buyers even have a chance to look round.

Why is it so hard to buy a house in this country?

It’s a very good question. We have just come through a profound economic shock (COVID) and we’re staring down the barrel of a cost-of-living crisis.

How can houses still be rising in value so significantly? Scott Taylor-Barr, from the broker Carl Summers Financial Services, says the UK property market is quite simply a law unto itself.

“The fact that average prices are 20% higher than two years ago, at the start of a global pandemic, is borderline fantastical,” he says. “Interest rate rises and the increase in the cost of living clearly haven't impacted the property market yet, with people still keen to get onto, or move up, the ladder.”

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The Stamp Duty holiday (during 2020-2021) made buying a house seem cheaper – but in a time-limited way, meaning many buyers rushed to complete and forced up the price as they competed with each other.

Then, being trapped at home for so many months meant that some people decided to move out of city centres or search for larger properties – dubbed the ‘race for space’ by estate agents.

Alongside those pressures, there’s also an ongoing shortage of new homes coming to the market, especially suitable first homes. Another factor, of course, is that the kind of homes that new buyers want to snap up are often also desirable properties for investors, meaning there’s competition that drives up prices.

The Help To Buy scheme

Those higher prices could even be causing trouble for new buyers who want to use government schemes designed to help them!

Take first-time buyers who have put money into the Help To Buy ISA, a savings offer which has now closed to new savers. Under that scheme, the government has paid a bonus of 25% on savings, up to a maximum of £3,000.

But the trouble for buyers who want to use their bonus is that they have to buy a property worth no more than £250,000 (inside London the cap is raised to £450,000).

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With the average property worth just £260,000, that means many may struggle to use the extra help they’ve been given.

Laura Suter, head of personal finance at AJ Bell, has a suggestion for people caught out by that – you could switch to a Lifetime ISA which has a higher limit of £450,000 no matter where you buy.

“However, anyone switching to a Lifetime ISA needs to be mindful of a few rules, to make sure the accounts are right for them.

“The biggest one is that the account needs to be open for a year before you buy a house, so it’s no help if you plan to buy in the next 12 months. But with a higher property limit, higher contribution limit and higher potential government bonus, you could get more free money by moving.”

Will anything change this year?

The conflict in Ukraine and the economic measures in response mean that the world is once again facing a significant economic shock.

Sadly for would-be first-time buyers, many analysts believe that even this won’t be enough to lower house prices, although they might not grow as fast as they have been.

Taylor-Barr says that actually things could be even tougher for new buyers or second steppers: “As the year progresses, rate rises, tax hikes and the spiralling cost of living are going to bite, with lenders’ affordability calculators likely to become less generous and borrowing rates heading north.

“This means that, even though first-time buyers may still be motivated to buy, they perhaps won't be able to just yet. We're unlikely to see house prices fall due to the abject lack of stock but it's hard to see this rate of growth continue during 2022.”

Even with a tighter mortgage market, would-be buyers might find slowing prices make their dreams of home ownership at least slightly more plausible this year.

Watch: Will UK house prices ever fall?