7 October 2022
If you are covering the Halifax Price Index, please see the following comment from Karen Noye, mortgage expert at Quilter:
"For the second time in three months house prices have dropped, this time marginally by -0.1% in September, showing that the tidal wave of economic issues facing the UK is likely to drag house prices down with it. After years of prices defying expectations in the face of serious economic uncertainty from the Covid-19 pandemic it seems that inflation and ever-increasing interest rates will be the straw that breaks the camel’s back.
"Rising interest rates will simply make mortgages less affordable. This will precipitate more people to put their houses on the market so they can downsize and achieve lower monthly payments. When more houses hit the market there is naturally more choice and crucially more room for bargaining. The seller’s market, we’ve been witnessing for the past few years quickly becomes a buyer’s market. The problem is buyers are also struggling massively with the cost-of-living crisis so demand is also set to soften, therefore those that can still afford to move will have more choice and more leverage to put in lower offers and house prices drop.
"It remains to be seen how far house prices might drop but some of the housebuilders are pricing in a 20% drop, which could be an overreaction, but it is certainly not out of the question. House prices have become bloated in recent years having benefited from government policies such as the stamp duty holiday during the pandemic at a time when borrowing was very cheap. Now the cost of borrowing is on the rise, the stamp duty cut recently brought in by Truss may serve to steady a sinking ship but it’s still likely to take on a huge amount of water.
"First time buyers might be somewhat buoyed by the news house prices are dropping but the affordability problems associated with getting a mortgage remain incredibly difficult. The rise in interest rates could spur more innovation in the mortgage market particularly for first time buyers who could be completely locked out of owning a home as rates increase.
"Due to years of ultra-low interest rates this has meant there has been a boom in the popularity of fixed term mortgages allowing borrowers to lock into long term low rates. However, in this new era of rising rates and more unpredictability we might see tracker and variable rate mortgages become more attractive if a drop in interest rates is then forecasted in the future although at present this looks a way off.
"While the outlook for the property market doesn’t look too rosy, the same was said just after the Brexit vote with reports that the market may crash then and had people been put off they would have missed out on some incredible house price growth particularly over the last two years. Similarly, the stamp duty cut does enable buyers to make significant savings, which if a new government was to come in would likely be reversed so there is an element of use it or lose it. Sometimes it is not worth trying to time the market and instead just do what’s best for your own circumstances. It is often impossible to predict the future and making decisions are best made on your own needs and financial circumstances."
