Hellish interest rates and their impact upon mortgage holders threatens to hit the housing market at both ends, with current homeowners unable to save for new pad and prospective first-time buyers put off entirely.
All of this is feared to paint a picture of looming stagnation across the board in which there are no incentives to buy or sell for the first time and little room to buy for a second time.
While average house prices may have risen in the year to June 2023, prices are significantly lower than their peak in November 2022 and demand is dwindling, new stats show.
The recent UK House Price Index showed the average house prices hit £288,000 in June 2023, which is £5,000 higher than 12 months ago, but £5,000 below November’s peak.
Andy Russell, CEO of Wealthify commented that while these are not particularly encouraging statistics overall, the reduction in prices over the last few months suggests that there could be a “degree of hope” for those in the UK looking to purchase a house.
But, he added: “With mortgage rates still high, affordability is stretched, and many first-time buyers feel like they can’t catch a break.”
Adrian Lowery, financial analyst at wealth manager Evelyn Partners noted that while the ONS index is the “most final and comprehensive” measure of property values, it is “quite backwards” looking.
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He said: “It does confirm though that valuation impacts are being felt more keenly in the areas of the UK with the highest house prices – London, the South East, the East and the South West – where buyers are more likely to be dependent on mortgage funding.”
The North East saw the highest annual percentage change of all English regions in the 12 months to June 2023 (4.7 percent), while London saw the lowest (negative 0.6 percent).
Mr Lowery said: “More timely July mortgage approval-based data from Nationwide and Halifax have shown modest monthly falls in house prices and annual reductions of between 2.4 and 3.8 percent.”
Meanwhile, a recent RICS survey of estate agents painted a “gloomy picture” of falling enquiries and sales agreed, as the effects of higher mortgage rates are starting to feed through.
Mr Lowery continued: “The full effects of more expensive home loans have yet to feed through to property values, but it remains to be seen whether the impact will be more profound on sales numbers than on valuations.
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“Prices could certainly moderate at the higher end, as many more families just sit tight rather than upsize, and first-time buyers just go for smaller properties (which evidence is bearing out) – many of which might be coming on the market from retreating landlords.”
Michelle Niziol, estate agent and owner of IMS Property Group substantiated this with trends amongst her own clients, telling Express.co.uk: “Clients are not over-stretching themselves, they are being very sensible. First-time buyers are now opting for a one-bed to two-bed property, a few years ago they may have stretched to a three or four-bed with interest rates being so low.”
Mr Lowery continued: “We could see a decline in both sellers putting properties on the market and home-mover interest – and a concomitant stagnation in house prices rather than a crash, leaving the property market in the doldrums. Such an outcome could be backed up by the continuing ‘less bad than feared’ news on the economy, as growth, jobs and a nascent retreat in inflation – while not cause for celebration – do not yet point towards a huge slump in consumer confidence.”
Tabitha Cumming, a property expert from The Lease Extension Company, told Express.co.uk that the number of mortgages being approved has fallen and is currently “below the average” that she would normally expect to see.
Ms Cumming said: “Rising borrowing costs have proven to be discouraging for many people who were perhaps previously debating buying a home, especially those who are already paying a mortgage on their current home.”
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Additionally, Ms Cumming said: “There is not enough new housing being built to meet the eventual demands of the growing population, despite how current demand for housing has fallen because of unaffordable mortgage payments.
“As of right now, many buyers are being priced out of expensive areas and homes in many areas are being sold for below their original asking price. House prices are changing slower than ever before, and are expected to continue to fall due to the rising Base rate and high mortgage rates. If lenders decide to lower their rates, then house prices would potentially be able to recover, but this is unlikely to happen for another few years.”
Mr Russell suggested those who still have some way to go to save up for a deposit may be thinking about where to put their money to get the most out of it. He said: “If you’re planning on buying in the next couple of years, there are some really attractive interest rates out there at the moment on cash savings accounts.
“However, if you are planning to buy in five or more years, it may be worth considering investing. The level to which inflation can eat into your savings matters less when you are nearly ready to use your deposit, but it can a material difference if you have more than a few years to go.
“Historically, the financial markets have tended to outperform savings rates over a longer period of time, so investing may be the right option to build up that deposit, protect your money from inflation, and allow it to grow until you are ready to use it to achieve your goal.”
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