Category: OCTOBER 2023

It is hard to get away from politics these days, in any part of the world. And, while the tragedies playing out in the Middle East are heartbreaking and have dominated the news agenda, what is happening closer to home is not without interest. For the housing market, it could be rather important.

Sir Keir Starmer, the Labour leader, set the ball rolling with his speech at his party conference in Liverpool, in which he pledged 1.5 million new homes over five years, saying that he would “bulldoze” through restrictive planning rules and local opposition, if necessary, to achieve it.

There is not, as I have written before, much chance of 1.5 million new homes being built over five years, something that was last achieved in the 1960s, barring a supercharged council housebuilding programme.

When the 300,000 average was last achieved, local authorities accounted for 40 per cent of new homes built.

Given the state of the public finances, while many might argue for a re-run of that policy, that is unlikely to happen either.

The best hope lies with insurance companies and pension funds, who could see rented properties as the kind of stable long-term investment they need.

So far, however, only a small number have dipped their toes in the water.

Even so, there were suggestions that Starmer’s bold words would backfire.

Would “Nimby” voters in the shires react against a Labour party promising to bulldoze through restrictions?

Conservative party members canvassing in Mid Bedfordshire, if not Tamworth, reported some disquiet on the doorsteps.

Mid-Beds, it seemed, could remain a Tory seat, though with a sharply reduced majority, because of this factor.

As you will know, if there was such disquiet, it was not enough to prevent Labour achieving stunning victories in these “safe” Conservative seats.

Voters know that, while they may not like the noises Labour has been making about building on the edges of the green belt – which official figures show has been expanding, not shrinking – their children will need somewhere to live and a chronic shortage of housing, to buy or to rent, does nobody any good.

After a surprise victory in the Uxbridge by-election a few weeks ago, attributed by many to a protest against the extension of the London mayor’s ULEZ scheme, the prime minister decided to go more slowly on net zero measures.

Had the Tories held on in Mid Beds, the government might have decided that all was well with its housing policy and that there was no need to be more adventurous.

Fortunately, that was not the case.

Labour’s victory has renewed talk, which many in the industry have been talking about, of a “retail offer” to voters either later this year or in the November 22 autumn statement, or next year in the March budget.

There are, according to The Times, two candidates for this retail offer.

One is stamp duty, though it is not obvious on the face of it what that offer might be.

The temporary increases in stamp duty announced in November last year are still in place and will be until April 2025.

These, to remind you, were a zero rate up to £250,000 (though not for landlords) and an increase in the nil rate threshold for first-time buyers’ relief from £300,000 to £425,000.

That meant total relief in this category of a maximum of £625,000.

The other candidate for this retail offer is of less direct interest to the housing market, though of indirect interest.

This is said to be an increase in the inheritance tax threshold, or even a more dramatic move on the tax.

This would be a U-turn.

In his autumn statement in November last year Jeremy Hunt extended the freeze on the £325,000 inheritance tax threshold until April 2028.

Rishi Sunak, when chancellor, had frozen it until 2026.

The Sunday Times has suggested a variation on the first-time buyers’ theme, including extending the government’s mortgage guarantee scheme and introducing a new kind of individual savings account (ISA) to assist potential buyers in building up a deposit.

The mortgage guarantee scheme, helping buyers to purchase with a deposit of only 5 per cent, is due to expire at the end of this year.

Housing market participants may wonder at this potential flurry of activity.

It is good that housing is getting some attention.

It would be better if politicians devoted time to long-term thinking about the sector and the kind of tax reform which would stop penalising transactions and allow the market to operate more efficiently.

That may be too much to hope for.

Source: Property Notify

New research from eXp UK, the platform for personal estate agents, reveals that homeowners are largely unconcerned about cooling house prices, caring more about having a home to call their own than sitting on a profitable investment.

The platform surveyed 1,094 UK homeowners to find out how they feel about cooling house prices and the impact they have on the market value of their home.

The survey reveals that, before buying their home, 89% of current homeowners believed it was important to get their foot on the housing ladder.

When asked why getting a foot on the ladder was so important, half (51%) say it was simply about being able to own a home of their own, free from landlords and rental market restrictions.

16% say they wanted to own in order to set the foundations for building a family, and just 12% say that making an investment to generate profit when later selling was their main drive for buying.

In reference to the current housing market, homeowners were asked whether they believe cooling house prices, and the subsequent return to normal levels following the extraordinary pandemic boom, are a good thing. In response, 83% say yes.

When asked whether they are worried that current cooling market conditions could snowball into a house price crash, only 27% report having any sort of concern, while 49% say they feel indifferent about the matter.

Despite today’s cooling prices, homeowners have faith in the long-term health of the UK market, with 86% saying they remain confident that when they come to sell their home, they will receive more money than they paid for it.

But even if their resale does achieve less money, owners remain, by and large, unconcerned.

86% of homeowners say that they will have no regrets if their home eventually sells for less money than they paid for it; and 72% say that, even if they had known before buying that they would lose money when reselling, it would not have prevented them from making the purchase.

Source: Property Notify

UK house prices fell further in September, edging down by -0.4% on a monthly basis.

This was a sixth consecutive monthly fall, though the pace of decline slowed markedly compared to August (-1.8%).

The average home now costs £278,601, a drop of around £1,200 since last month.

On an annual basis prices are down by -4.7%, largely unchanged from -4.5% in August.

Nonetheless they remain some £39,400 higher than in March 2020, such was the extraordinary growth seen during the pandemic, said Kim Kinnaird, Director, Halifax Mortgages.

Kinnaird continued, activity levels continue to look subdued compared to recent years, with industry data showing lower levels of new instructions to sell homes and agreed sales.

Borrowing costs are the primary factor, given the impact of higher interest rates on mortgage affordability.

Against this backdrop, homeowners inevitably become more realistic about their target selling price, reflecting what has increasingly become a buyer’s market.

However, with Base Rate now likely to be at or around its peak, we are seeing fixed rate mortgages deals ease back from recent highs.

Wage growth also remains strong, which has helped with affordability, with the house price to income ratio now at its lowest level since June 2020 (6.2 in September vs 6.3 in August).

Many economists and financial markets predict that Base Rate will remain higher for longer, with any significant cuts appearing unlikely until inflation gets closer to the Bank of England’s 2% target.

Overall, these factors are likely to keep mortgage rates elevated in comparison to recent years, constraining buyer demand and putting downward pressure on house prices into next year.

House price resilience despite rate increases

The Bank of England’s decision to hold Base Rate at 5.25% at the most recent MPC meeting ended a run of 14 consecutive increases.

This was the fastest monetary policy tightening cycle in recent history.

House prices have proven more resilient than expected over that period, despite higher mortgage rates suppressing market activity.

While property prices are now around £14,000 below the August 2022 peak, they remain +1.0% above the level seen in December 2021 (£275,889), the month when Base Rate first edged up from 0.1% to 0.25%.

However, as we have highlighted previously, there is often a lag-effect between rate increases and the full impact of higher mortgage costs on house prices.

Source: Property Notify

Since the Bank of England base rate started making large jumps around the middle of last year, mortgage rates have increased significantly from the historic lows that borrowers had enjoyed since early 2015, when the average two-year fixed rate dropped below 2% and the average five-year fixed went sub-3%.

By the autumn of 2021, average two-year fixed mortgages were just 1.2%, with some borrowers able to access a rate of below 1%, and average five-year fixed rates were less than 1.3%.

But in December 2021, the bank rate started to rise from its all-time low of 0.1% and mortgage interest rates followed suit, as is the norm.

Some mortgage rates spiked to over 6% following the Conservatives’ disastrous mini budget last September, although they did start to fall again once Rishi Sunak took over as leader.

By the time we entered 2023, the average two-year fixed mortgage rate was just under 5.8% and the Bank Rate stood at 3.5% with experts predicting further increases before the summer.

What’s happened to mortgage interest rates so far this year?

At the start of the year, even with the bank rate rising and inflation still high, mortgage rates continued their steady decline from the November 2022 peak.

In February, two and five-year fixed rates were 5.44% and 5.2% respectively, then in March those figures dropped to 5.32% and 5%.

But by May, as repeated base rate increases failed to have an impact on inflation, lenders began to backtrack and in mid-June, the average two-year fixed mortgage rate rose to over 6%.

Individual rates have started to come down again

However, that is just an average figure, and the good news is that individual rates have started to come down again, mainly thanks to significant falls in the rate of inflation, which is now expected to reduce to 5% by the end of this year and then reach the target of 2% by the start of 2025.

In July, HSBC became the first high street lender to announce that it was making some cuts to its fixed-rate products, with other major lenders – including Nationwide, Barclays and Virgin Money – following suit over the next month.

As it stands in September, first-time buyers can access five-year fixed rates at well under 6% and two or three-year fixed products at slightly above 6%.

Five year rates are lower than two-year rates

It’s worth noting that it’s fairly unusual for a five-year rate to be lower than a two-year one, as has been the case for around a year now.

This is the strongest possible indication that lenders do believe the base rate will fall significantly in the future.

Despite a 14th consecutive increase at the start of August, to 5.25% we have now, as of 21 September, seen the first freeze in 15 months.

Capital Economics had previously predicted that rates would peak at 5.5%, lower than previously forecast and so perhaps this will never materialised.

This is likely to be followed by continuing falls in mortgage rates, which is good news for borrowers.

Speak to a broker

There are so many variables to consider, that if you want to buy or need to remortgage this year, we think it’s well worth talking to a mortgage broker sooner rather than later, allowing at least six months to go through the remortgage process.

Mortgage applications can be held up if documents are missing, so make sure you gather what is required and provide them with all the necessary information as soon as possible.

Source: Property Notify