The great British Property Market stand off

What a difference just a few weeks can make. As the year comes towards a close, the red-hot housing market has been brought to a shuddering halt by government incompetence, uncertainty and soaring mortgage interest rates.

It now appears to be in a standoff as just about everyone suddenly feels stuck. But who will blink first? House Prices have started to fall from their peaks in some of the nation’s hottest markets—but not enough to make up for the higher mortgage rates. So, more and more buyers simply can’t afford to buy or are worried about doing so. Sellers, who are typically also buyers, don’t want to give up their low mortgage rates to purchase new properties. Renters can’t afford to move. And many new homeowners fear they bought at the peak of a now rapidly deteriorating market and could be heading for negative equity. All in all, it isn’t looking much like a Merry Christmas! 

No one wants to catch a cold and with the majority of the written press, media and property experts all having their say on the size of any house price drops, many buyers are simply shelving their plans and waiting to see what happens next. 

So, what’s next?  Will mortgage rates continue to rise? Could prices come down even more? And will buyer confidence and stability return to the market? 

There is a belief that home prices will have to go down. So, consumers are saying, ‘Why would I buy now if prices are lower in two months’ time or three months’ time?’” and this mindset is freezing the housing market.

In the past few months mortgage rates have risen from just around 1 and 2% to around 6 or 7% for 20/25 year fixed-rate loans and the suggestion is we haven’t seen the end of these rate rises. This translates into mortgage payments rising by hundreds pounds every month at a time when the cost of living crisis and rising inflation are already impacting heavily on household budgets. 

Few buyers, especially first-time buyers can afford that sort of increase. Many can no longer qualify for mortgages due to the higher rates, and sellers are being forced to slash their homes which are sitting on the market longer and sales are stalling, as many buyers get cold feet or try to renegotiate the price they originally agreed. So, the pressure is on home prices to come down. And they’re beginning to oblige.

How low will home prices go?

Many prospective buyers are eyeing home prices like a game of limbo. How low will they go?

This is very much area specific, however it is safe to say that it is affecting house prices across the UK. Here is Cheadle we have been quite lucky so far, but prices are definitely coming down. It is however worth remembering that prices spiked during the pandemic and have therefore been running artificially high, so even a 10% reduction, would still leave prices above pre pandemic levels. However, if prices did drop 20-30% as some of the more extreme predictions are suggesting, that would be a different ball game completely. 

It is also worth pointing out that the housing market is cyclical, and it was inevitable that the steam would run out of the market at some point, just nobody expected it to be so quick and so dramatic. 

Are Rental prices also poised to slow?

Not yet. In fact, quite the contrary. With rental demand rising and stock being in such short supply, rents are still rising. Also, Landlords who have a mortgage on their rental property are increasingly passing on the cost of a higher mortgage in higher rents. The question is if it will be sustainable? 

Most renters are struggling to afford the higher price tags, especially as inflation, gas, and other costs have soared. Rents in many places are so high that many young adults can’t afford to move out of their parents’ homes, which is a sad state of affairs. Rents will surely need to stabilize and even start to come down a little or we will increasingly see properties remaining vacant for longer periods. 

Mortgage rates are poised to rise—but could yet be coming down instead

Mortgage rates are expected to remain high—and could even rise through to the end of the year.

This is due to the Bank of England battling spiraling inflation. Their own target is around 2% whilst the current rate is running at a 40 year high of 11.2%. This then has an impact on interest rates and mortgage repayments. 

However, interestingly some lenders have started to bring the rates down a little for some fixed term loans, so it pays to keep an eye on the mortgage market or speak to an independent broker to see what is happing with mortgages, however there would need to be a return to some stability in the rates before confidence will return to the housing market. 

More homes for sale, but not many new ones coming on the market

Buyers finally have more options to choose from—just not many new ones they haven’t already seen.

Rightmove reported rising stock levels last month, however much of this stock is properties where the sales have collapsed and returned to the open market. There isn’t much new stock currently coming on to the market. 

Some sellers, who were planning to list their homes, are still going to attempt to unload their properties while prices are still high. Others will need to sell for life reasons, such as needing more space as their families grow or wanting less space as their children leave the nest. There are also those who will move for work or to be closer to family, friends or preferred schools.

Most sellers are also buyers. Those who don’t need to move will likely stay put—especially if they have a mortgage, these are what we describe as the speculative sellers. Most homeowners now have loans with rates in the 2% and 3% range. If they purchase a new home, they will need to get a new loan with a rate that’s likely to be at least twice or three times as large. Plus, many of those who do sell right now are having to cut prices, so a double whammy in effect. 

Builders currently have a lot of homes in the pipeline, but they’re beginning to pause construction in the face of fewer buyers. Despite the housing shortage and the government pledge to build more homes, they don’t want a repeat of the housing bust when many companies went under.

A recession will weaken the housing market even further

As the nation hurtles into a fully-fledged recession, the housing market could fair even worse, especially if it starts to bring increased unemployment and rising job insecurity.

When the last recession hit in 2008, the average UK house price stood at £183,148. When the country started to emerge from the crisis in June 2009, property values had dropped almost 13% to an average of £159,561. 

However, since the last bubble popped, most of the subprime mortgages that got homeowners into trouble have been abolished. Lenders have become stricter, and now only the most qualified borrowers are getting approved for mortgages, lessening the risk of another repossession crisis. 

And unlike during the last crisis, there are more buyers than there are homes for sale, which will hopefully ensure the market doesn’t collapse completely. 

If you are thinking about moving in Cheadle but are uncertain what to do and would like to discuss the market and where to position the property price wise to sell, please call Patrick, Joe or Maurice on 0161 428 3663, e-mail sales@mkiea.co.uk , call into our High Street office in Cheadle village or book an appointment online via this link Book a FREE valuation