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How is the property market responding to ongoing uncertainty?


By Kate Faulkner

Property Market Analyst and Commentator

During the summer, we were looking forward to a less manic property market than we’d experienced during the pandemic. The high levels of demand, particularly for houses, was expected to reduce, with early evidence suggesting more properties were starting to come up for sale.

The impact of rising interest rates on mortgages was expected to reduce both buyer demand and their ability to make strong offers for properties, so some forecasters, including Capital Economics, were suggesting prices might fall by 5-7% in 2023/4, while the likes of Knight Frank were expecting small rises of 2.5-3% . These forecasts accompanied the expectation that mortgage rates were likely to rise from the 2.5% seen in 2021 to around 4%, as was recorded in September 2022.

(Source: moneyfacts)

Mortgage market analysis

However, when the mini-budget was announced, the Bank of England base rate was predicted to rise to around 4% (up from 0.1% in September 21), which means mortgage rates would increase further than expected. Fixed rates are already as high as 6%, adding several hundred pounds to some people’s mortgage payments.

(source: https://www.bbc.co.uk/news/business-63119047)

Will the market turmoil lead to a property crash? 

Unsurprisingly, there have been a lot of worrying headlines about an impending property market crash. And, talking to agents, surveyors and legal companies, there is no doubt that some are seeing a real slowdown in the market and even some chains collapsing where mortgages were not at offer stage. However, it’s also important to know that this isn’t the feedback from all areas of the country about all property types.

Nevertheless, the forecasters believed that, on average, the higher interest rates will impact property prices and this is likely to still be the case even with the government’s latest U-turn on many of the policy changes. According to the CEBR, base rates were expected to reach 6% and, along with Capital Economics latest forecast, they may only hit 5% with the U-turn. However, that means rates are still expected to be higher than they were pre the mini budget. So far, we are still left with Capital Economics’ forecasted falls increasing from 5-7% to 12% during 2023 and 2024. And Knight Frank has revised its prediction from a rise of a few percent to 10% falls over the next couple of years.

(Sources: https://www.capitaleconomics.com/publications/us-housing-market-update/house-prices-fall-8#:~:text=Property%20capital%20values%20set%20to%20fall%20by%2015%25&text=With%20rental%20growth%20constrained%20by,trough%20fall%20of%20almost%2015%25  and https://www.knightfrank.com/research/article/2022-10-05-uk-property-market-forecast-updated-october-2022)
https://www.capitaleconomics.com/publications/uk-economics-rapid-response/chancellor-statement-17th-oct
https://www.yourmoney.com/mortgages/mortgage-rates-likely-to-be-slightly-lower-following-hunt-mini-budget-u-turns/

There is some good news from the U-turn though as the stamp duty changes in Wales, England and N.Ireland which could save buyers several thousands of pounds, more if they are first time buyers in the likes of London, are being kept for the time being.

However, the latest predictions are very general and don’t take into account the fact that, although fixed rates have risen quite substantially, there are still variable and tracker rates at around 3% for those with loans to value of 60% or less who need to remortgage, although you have to take on the risk of rates rising further before they are expected to fall again in 2024.

(Source: https://moneyfacts.co.uk/mortgages/remortgage/ )

https://www.capitaleconomics.com/publications/uk-economics-update/our-new-interest-rate-forecast-peak-400

Find the best remortgage rate for you

And we should also remember, as around 80% of people are currently on fixed rates, many won’t be affected by the rises yet and some may be insulated for the next few years. At the same time, anyone who has a fixed rate coming to an end within the next six months should be contacting their mortgage broker now to find out the best steps to take for their personal circumstances.

The property market is very individual to you and your property

For anyone looking at buying, selling or remortgaging, things are certainly tough at the moment because of the amount of economic and market uncertainty. Even as we write, the new Chancellor has not only scrapped many of the mini-budget changes, but also hinted there will be harsher changes to come. The one positive note is that this may mean interest rates don’t go up as high as the 5% that is currently predicted, depending on the Bank of England’s reaction which we will be announced on the 3rd November 2022.

But when you look at the property market, whatever average rises or falls are quoted or forecast, it’s important to understand that they are just blanket averages and rarely apply to individual properties. A good example of this is the difference in price growth between flats and houses.

Over the last few years, we have seen property prices reported as rising ‘on average’ at double-digit rates on an annual basis. However, when you look at the rise in flat prices, which are typically bought by first time buyers with high loan to value rates, versus houses, many of which are owned outright or with low loan to value mortgages, the difference is stark.

According to Zoopla’s latest research, the average gain in flat prices between March 2020 and August 2022 was 9%, while average house prices grew by a huge 21%. So, the current issues are far less likely to affect those owning a house, either without a mortgage or with a low loan to value, because of the increase in equity many of them have already enjoyed over the last couple of years.

However, first time buyers and buy to let investors reliant on higher loan to value mortgages are undoubtedly going to be impacted by the rate rises, and that could result in a drop in demand for flats and lower-priced homes. If that shifts the balance to an oversupply of these types of property for sale, we could see some price falls. Meanwhile, given that many people will still be able to afford houses, buying either mainly or entirely with cash, they could remain in short supply versus demand and be less likely to suffer the kind of price falls broadly predicted.

(Source: https://zpgcommercial.wpenginepowered.com/wp-content/uploads/2022/09/UK-House-Price-Aug22-final-2.pdf)

Monetary growth in houses

What should buyers and sellers do now?


At the moment, for anyone looking to move or remortgage, it’s essential to consult experts that are qualified to help you. A professional estate agent that is a member of NAEA or RICS who understands the supply and demand for your individual property type and a good mortgage broker that can help you work out what’s going to be best for you over the next few years are invaluable at a time like this.

Although things are very uncertain now, do remember that if you need to move home, you should be able to. And, because you’re likely to be staying in that property for some years to come, when it’s time for you to move again, both property prices and mortgage rates are likely to be much more stable and assured.

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