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Property Outlook for 2023

For anyone thinking of buying or selling property in 2023, it is a good idea to take stock of what the property experts are predicting for the year ahead. Many people are asking the question – will house prices fall in 2023 and is it a bad time to sell? The other major concern is what type of mortgage to take out for homeowners whose fixed rates end in 2023.

This article provides a summary of forecasts from some of the top property experts, which should help you to understand how the property market could impact you in 2023.

What is the current property outlook?

Heading into 2023, there are early suggestions that the property market could be in for the biggest house price fall since 2008. The combination of high mortgage interest rates and the cost of living crisis are adding up to a possible property value crash. Of course, experts have shared forecasts of property market declines before, which were never realised, but there is a growing number of signs that the UK is bracing for significant house price falls.

Throughout the pandemic, many homeowners saw their property value grow substantially due to the housing boom, with the stamp duty holiday helping to boost the property market following the slowdown during lockdowns. Now many experts are forecasting that the bubble is about to burst.

At the end of 2022 the property market had already shown indications of a declining trend. In November, the average house price dropped by 2.3%, which was the biggest drop since 2008. December marked the fourth consecutive month of declining property prices, which was also the longest run since 2008.

Savills Estate Agents are predicting that house prices will fall by 10% during 2023. Halifax are predicting a similar figure of 8%, while Nationwide are expecting a less extreme fall, predicting a 5% drop before the market stabilises to just below pre-pandemic levels.

Mortgage interest rates

Following the mini-budget in September, many lenders removed mortgage products from the market, leaving many potential property buyers unable to get onto the property ladder. Mortgage rates soared to over 6%, while the average five-year fixed rate stands at 5.6% at the start of 2023, which is considerably higher than interest rates were at the same time last year.

With mortgage rates at a much higher rate than they have been in recent years, people are being priced out of getting onto the property ladder or buying a bigger home, preferring to wait to see if mortgage rates start to come down again. Prospective buyers are being cautious, as they are worried about a potential house price crash that could leave them in negative equity. This is reflected in the 28% year-on-year reduction in property sales reported by Zoopla in December 2022.

This slowdown in property sales and reduction in demand impacts the house prices, with sellers being forced to reduce asking prices to enable them to secure the sale. Zoopla recently shared that sellers had reduced the asking price by an average of 4% in December 2022 to achieve a sale.

There will be some exceptions of sellers who will not be forced into reducing asking prices, for example, where there is a higher demand for a certain property type or properties in a much-sought-after location, which we discuss further on in this article.

Get in touch with us today to speak with the UK’s Best Contractor Mortgage Broker.

Cost of living crisis

The UK has been experiencing an ongoing cost of living crisis, with inflation increasing at a higher level than wages. UK households are dealing with exceptionally high energy bills, as well as price increases on fuel, groceries and many other living costs. The inflation rate is expected to ease later on in 2023, which should, in theory, improve the finances for many UK households and provide more disposable income that could be used for buying property.

Remortgaging options – fixed rate or variable?

According to the Office for National Statistics, more than 1.4 million households in the UK will face increased rates as their mortgage renewal is due in 2023. It is a worrying time for homeowners who have been on a lower fixed rate for several years, who now face the decision of whether to enter another fixed rate term or to opt for the unpredictability of a variable rate mortgage.

Around 57% of the fixed rate mortgages that are coming to an end in 2023 were on fixed rates of below 2%, so moving onto rates of between 4% – 6% will be a huge financial burden for so many. Any homeowners who may have been considering moving into a bigger property are likely to be put off by the current interest rates, further reducing the demand for properties and impacting house prices.

As homeowners approach the end of their fixed mortgage, they have to make the choice of being tied down to a higher rate mortgage for 2 or more years or take more of a gamble by choosing a variable rate mortgage in the hope that rates will start to fall in the near future. Mortgage advisers are being inundated with queries about which option will be more financially beneficial, but it is too difficult to forecast when the mortgage rates will start to fall.

Shortage of housing stock

The continued shortage of housing stock shows no signs of being resolved, with the government currently failing to meet targets to build 300,000 new homes each year. The shortage of new houses being built, coupled with high mortgage rates and increased living costs is likely to keep the rental property market buoyant. With more would-be homeowners choosing to wait to buy a property, this is expected to further increase the demand for rental properties.

Get in touch with us today to speak with a specialist Contractor Mortgage Advisor.

Regional variations in house prices

While many experts are predicting a slide in house prices, rather than a crash, there are some areas of the UK and property types that should buck the trend. Over the last few years, there has been a surge in demand for properties that are in more rural locations, allowing people to spend more time outdoors and buyers are also looking to purchase more spacious properties. Semi-detached properties and terraced houses are the most in demand, with flats at the lower end of demand.

With many home buyers having more flexibility around their working location, some buyers in 2023 will be reviewing the options of buying properties in areas where they can get more for their money. Over the last few years, the North of England has become popular with buyers who are not tied to one location for work and with an increased population of people working from home compared to pre-pandemic, this trend looks set to continue.

Cheaper property prices in the North of England have been attracting property investors who can build up their property portfolio faster by purchasing cheaper options than areas such as London and the South-west of England. However, mortgage rate increases will have a big impact on property investors who do not have capital for property purchases and need to take out mortgages.

Property investment

The high mortgage interest rates at the start of 2023 are bad news for investors who were planning on taking out buy-to-let mortgages to boost their property portfolios, and investors are likely to be more cautious in 2023 until rates start to fall. However, if there is a house price crash, this will present excellent opportunities for both residential buyers and property investors who can take advantage of lower property prices.

Property investors can gain a return on investment from both their rental yields and any house value increases that occur while they own a property, so even if house prices fall over the next year or so, there is still a good chance that there will be generous capital growth over several years. With a high demand for rental properties, there should also be less voids and the ability to charge high rental yields.

Conclusion

While there is a large number of property experts predicting a significant fall in house prices in 2023, this can help many people to get onto the property ladder once mortgage rates start to fall, which is expected to happen over the course of the year. However, at the start of the year while mortgage rates are still high, prospective first-time buyers and homeowners looking to upsize are being cautious and waiting to see if mortgage rates fall.

Homeowners who saw a large increase in house value since the pandemic could stand to lose those gains, unless they are able to secure a sale before house prices start to fall.

Property investors who do not have to borrow money from mortgage lenders to buy property will be eagerly awaiting the predicted house price falls, but overall, estate agents can expect to have a quieter start to the year for house sales until momentum picks up again when mortgage rates start to fall.

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Mortgages for the self-employed

Securing a mortgage may be more of a challenge if you’re self-employed (e.g. running your own business, or freelance).

Self-employed income is often less predictable and may also be less secure than a salary, so mortgage lenders need more reassurance that you can afford your monthly repayments in the long term.

You may therefore need to prepare more carefully if you’re self-employed, so that your mortgage application isn’t rejected.

Bear in mind that every rejected application can harm your credit score and make the next one more difficult, so give it your best shot the first time.

The self employed mortgage – busting the myths

You may have heard the phrase ‘self-employed mortgage’, but the truth is there is no special type of mortgage deal for self-employed people.

In principle you have the same choice of mortgages as a salaried applicant, although depending on your personal circumstances you may be offered a more limited range of deals, and may also face more stringent checks.

Get in touch with us today to speak with the UK’s Best Contractor Mortgage Broker.

Tips on mortgages for the self employed

Here are some guidelines for applying for a mortgage if you are self-employed, and how to maximise your chances of securing a good deal.

Can your spouse take the lead on the mortgage?
It might sound obvious, but if your spouse is salaried rather than self-employed, it can make more sense for them to be the first name on the mortgage, as their application may be more likely to be approved.

Even if their income isn’t quite as much as yours overall, the fact that it’s regular and predictable may count in their favour. Ask your mortgage broker about this option.

Show at least two years of accounts
In most cases you’ll need to provide at least two years of recent accounts – the most recent can be no more than 18 months old.

Hire an accountant to ensure the accounts meet the required standards, and ask him or her to explain the accounts to you in detail so you can speak confidently about them if questioned.

Some lenders ask to see an SA302 form (a confirmation from HMRC of the income you’ve reported to them) either instead of or in addition to your accounts.

These can take a few weeks to arrive, so request them in good time. You may also be asked to show some recent tax returns.

Increase your income if you can
When running a business, usually it’s good practice to retain as much profit as possible within it.

However, you may want to make an exception when trying to secure a mortgage.

Paying yourself a higher dividend of the profits can boost your application, and should also enhance your savings so you can afford a larger deposit.

Once you have your new home, you can readjust your income if you wish, so long as you can still afford the repayments and other outgoings.

Postpone major business changes
Lenders look for stability, so it may hinder your chances if you’ve only recently changed the structure or type of your business (e.g. from a sole trader or partnership to a limited company).

If you don’t want to delay that change, then give the new business structure time to bed down so that the lender can have confidence in it.

Make sure your lender is aware of the type of business structure you have, so they fully understand your level of income and how you receive it.

Get in touch with us today to speak with a specialist Contractor Mortgage Advisor.

Be aware of the deposit bands
This tip is useful for all mortgage applications, but it can make an even bigger difference when you’re self-employed.

A larger deposit always means lower repayments, but there are also bands above which rates become even cheaper (typically 10 per cent, 25 per cent and 40 per cent deposit).

If you’re close to one of these bands, see if you can raise just a little bit more money to get past it – it’s usually worth the effort.

Remember that lenders often have different criteria
Why would one lender say ‘No way!’ and another say, ‘No problem!’? Because they may consider your earnings in a different way and take different income into account.

For instance, Lender A might focus on salary and dividends, while Lender B may base their decision on your operating profit and retained profits.

So if you get turned down by one, don’t despair – another lender may say yes without any changes to your income.

It’s good to consider this before you apply, to avoid the knock-back of a rejected application, so ask your mortgage broker to find the lender most favourable to your position.

Use a specialist self employed mortgage broker
Find a mortgage broker who has a lot of experience in finding mortgages for self-employed people.

A specialist can anticipate problems in advance and also source the most likely lenders for you from the whole of the market.

This reduces the risk of having your application declined. Although one declined application is unlikely to harm your credit score by much, a series of them might.

Seeing an adviser maximises your chances of being approved first time.

By Nick Green

Source: Unbiased

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Positive outlook for housing market as buyer sentiment improves

Despite the increased uncertainty of recent months, the latest survey from Savills shows that buyer commitment has improved since the firm’s previous survey in August, when it hit its lowest point since the start of the pandemic (April 2020).

This latest survey, undertaken this month, points clearly to the buyer groups most likely to be active in 2023: needs-based buyers in the early part of the year and increasingly the equity-rich lifestyle ‘right-size’ buyers as the year progresses.

Of those who gave a reason for moving, 41% were downsizing, 36% upsizing, while 23% were in the market because of a relationship breakdown or a bereavement, to reduce borrowing or because a change in employment necessitated a move.

Asked about their commitment to move, a net balance of +3% of all respondents said they were more committed to moving within the next three months and +12% over the next six months.

This rises to +20% for those moving for work, +32% for those moving because of a bereavement and +39% for those looking to reduce levels of borrowing. The most committed group, with a net balance of +48%, are moving because of a relationship breakdown.

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These needs-based buyers express the greatest urgency to move within the first half of 2023. By contrast, levels of commitment to moving amongst those looking to ‘right-size’ their homes, whether upsizers or downsizers, rise significantly over the next year or two.

Frances McDonald, Savills residential research analyst, said: “A return to a more stable political and financial environment following the tumultuous ‘mini-budget’ has led to a more positive outlook among potential buyers and sellers, despite the expectation of further economic uncertainty.

“While there are very clear headwinds, this survey suggests that there is a strong seam of demand in the market, but that it will be clearly split between those who need to move quickly and more discretionary buyers equally committed to moving but happy to bide their time over the next 12-24 months, to ensure that they get the right home at the right price.”

Some 77% of Savills agents agree that there has been a marked increase in the number of buyers coming through their doors looking to take advantage of expected lower house prices next year. Savills has forecast average falls of -6.5% across the UK prime regional markets next year, but a net +10% increase over the next five years, pointing to an opportunity for those less reliant on borrowing.

More debt-dependent first time buyers and mortgaged buy-to-let buyers are more likely to find themselves less able to transact until affordability improves, particularly until there is more certainty in the lending market, Savills says.

“The legacy of the pandemic – where buyers were driven by lifestyle choices and the birth of the ‘race for space’ phenomenon – is now permanently ingrained in the UK buyer’s psyche and expected to continue to shape choices in 2023,” continued McDonald.

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A vast majority (93%) of Savills agents agree that the value of home life is now more important than ever for their buyers. This is translating into buyers taking a longer-term view when searching for the perfect home. Fewer than one in 10 (9.7%) of buyers anticipate owning their next home for less than five years, while 60% expect to own for at least 10 years. A quarter (25%) of aspiring buyers are currently looking for their ‘forever’ home, with a 20+ year timeframe in mind.

Despite a return to offices and normal social routine, country living also remains popular. When asked what type of location is most attractive, the majority of aspiring buyers opted for small towns, villages and the countryside, over cities and their suburbs.

Agents also agree (58%) that somewhere to work from home is still a key priority for buyers.

“Buyers are also continuing to prioritise proximity to parks and open spaces, and family, above transport, amenities and schools,” added McDonald. “Only in London has proximity to the nearest train or tube station overtaken parks and open spaces, with proximity to family in fourth place behind shops and amenities.”

By Marc Da Silva

Source: Property Industry Eye

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Taking on the challenge of a self employed mortgage

Self-employed people still face an uphill struggle in mortgage applications, but help is at hand. Though some lenders have tightened their criteria, others are working with mortgage brokers to encourage buyers with complex incomes. Article by Nick Green.

If you run your own business, work as a contractor or earn through freelancing, then you’re disproportionately more like to have your mortgage application refused. Despite an extensive raft of measures from the government to help first-time buyers, from the stamp duty holiday to 95% mortgages, self-employed people are still relatively lacking in support. However, some lenders such as Bluestone are now taking a more proactive stance to encourage the self-employed, and many mortgage brokers remain very happy to take these customers on.

It has always been more difficult to get a mortgage when self-employed. Lenders prefer the reassurance, predictability and ease of calculation that comes from a regular income, rather than the more erratic, complex incomes (generally) associated with self-employment. The pandemic and lockdown have only amplified these differences, especially as many self-employed people and business owners have been less well-supported by grants and furlough schemes. As a result many lenders further tightened their lending criteria, at least initially. But there are a signs of a shift in the other direction.

A poll in April by Mortgage Solutions found that six out of ten mortgage brokers believe that product availability is narrowing for self-employed borrowers, while criteria are growing more stringent. However, nearly a third thought the opposite, suggesting that opportunities are still out there for those who persist. There are also indications that some lenders are being forced to relax their criteria, to avoid losing their customer base.

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Why the self-employed get a ‘raw deal’ on mortgages

What’s not in dispute is that the search for a mortgage has become a lot harder for the self-employed. Research by Mortgage Broker Tools (a platform used by mortgage advisers) suggests that almost a third of self-employed mortgages are now effectively ‘unaffordable’, and that the maximum amount such customers can borrow has dropped by 3% since August.

The research also found that over a third of self-employed applicants had suffered at least one mortgage rejection. A comparable study by mortgage broker Haysto found this figure to be smaller, at one in six, but still significant. Paul Coss, co-founder of Haysto, feels that the self-employed get a raw deal, given that often they can boast higher incomes in real terms than people on salaries can. He says, ‘Mortgage lenders tend to prefer people in full-time employment, because it’s easy and simple to understand their income. Being self-employed, your income isn’t as straightforward, [but] people shouldn’t be penalised for that.’ His view is that most mortgage lenders just aren’t willing to handle the extra effort of dealing with complex incomes.

Kaan Emin, a broker at Apply Mortgages, warns that self-employed people who use the government support scheme SEISS (the equivalent of furloughing themselves) may inadvertently harm their mortgage prospects. He says, ‘Most self-employed people of which have taken help from the Government during the pandemic are being disadvantaged by lenders. [They] have to return off furlough and evidence three months of business bank statements to evidence the same level of income they earned prior to the pandemic.’ He suggests that self-employed people should only use schemes like SEISS if absolutely necessary.

But David Baird, a mortgage adviser with Aventur Wealth, offers a more optimistic viewpoint. Although he concedes that Covid has had ‘a huge impact on self-employed mortgages’ and led to increased discrepancy, he says, ‘Personally I have not seen a decline in acceptance rates. Instead it has caused an increase in time taken on my part in researching the right lender for the right applicant.’ In other words, self-employed buyers still have a fighting chance if they can find a diligent mortgage broker who will search the whole of the market for them.

Get in touch with us today to speak with a specialist Contractor Mortgage Advisor.

New opportunities for self-employed homebuyers

Fortunately, some lenders do recognise the difficulties created by Covid, and are adjusting their requirements to reflect this. Leading the way is Bluestone Mortgages, which has updated its credit policy for self-employed applicants. Those who have experienced a drop of 10% or more in business income, but have since restored their earnings to their former levels, can use their 2019/20 as the yardstick both for affordability and maximum loan size. So long as borrowers can provide three months’ evidence of the restored income, it will be treated as the equivalent of a full year for mortgage purposes.

‘We are acutely aware of the hardships that the self-employed community has faced during the COVID-19 pandemic,’ says Reece Beddall of Bluestone, ‘and we remain committed to providing these borrowers with a lending solution that will better meet their needs.’

Shared ownership remains a possible route for those whose home ownership ambitions have taken a knock. This is most commonly offered by housing associations, but private companies are also creating opportunities. One of these is Wayhome, whose CEO Nigel Purves observed that the stamp duty holiday had still left a lot of people behind. He says, ‘Even with the Stamp Duty extension for an extra three months spurring on hopeful home buyers, there are many who find themselves overlooked and ignored due to their household income not meeting a mortgage lender’s criteria. This is despite them already having a deposit saved and being able to afford the equivalent of mortgage repayments in rent each month. More needs to be done to level the playing field and provide people with alternative routes into home ownership.’

Guarantor mortgages are another potential way to persuade a lender to take you on, though it requires having parents or other relatives willing to share the risk. Another, more radical option for self-employed first-time buyers may be to try and ‘weaponise’ the very thing that is keeping them off the housing ladder: namely, the over-inflated housing market. How? Such a move would likewise need the help of willing parents, who fully own their home mortgage-free and are willing to release equity from it to raise money for a deposit. The parents use equity release to take a chunk of money from their own home’s value, which becomes all or part of the deposit for their offspring’s home. So effectively it is an ‘equity transfer’.

Bob Hunt, chief executive of Paradigm Mortgage Services, says he is now seeing ‘a much closer alignment between the equity release sector and that of the first-time buyer.’ At one level the strategy makes a lot of sense – if the problem is down to rising house prices, then rising house prices can be part of the solution. The downside of course is that a lot of value is eroded during the equity release process, so by gifting a child a deposit made of released equity, parents would be reducing that child’s eventual inheritance by a much greater amount. Still, some families may consider it a price worth paying for the reward of home ownership.

Being self-employed does have many advantages, but ease of obtaining a mortgage isn’t one of them. Nevertheless, in the post-Covid market new opportunities are gradually emerging, and mortgage brokers are ready to help contractors, freelancers and business owners take advantage of them, while advising on the best options to choose.

By Nick Green

Source: Unbiased

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House prices: What happens when they fall?

Annual house price growth has slowed, and the latest monthly figures show a fall, according to Nationwide.

It follows the Bank of England’s decision to increase interest rates to 3%, meaning higher mortgage costs for many. Further rate rises are expected.

What is happening to house prices?
In the last two years, prices rose steeply – by about a quarter – across most of the UK.

That pace of growth was much faster than that seen after the 2008 global financial crisis, where houses lost about a sixth of their value and it took five years, on average, for prices to recover.

However, they have now started to slow.

Nationwide’s figures show prices fell by 1.4% between October and November – the sharpest monthly drop since the middle of 2020.

On an annual basis, it found prices grew by 4.4% compared to 7.2% in October.

The building society said the housing market looked set to “remain subdued” in the coming months.

Will house prices fall in the UK?
Monthly changes can be blips, but the UK’s largest lender, Lloyds, is planning for an 8% price fall next year.

In November, the Office of Budget Responsibility (OBR), which advises the government on the health of the economy – predicted that house prices will drop by 9% over the next two years.

Big jumps in interest rates put pressure on the amount people can afford to offer for houses, and that means less demand.

Mortgage affordability also depends on wider cost-of-living pressures like energy bills, wages and job security. The future of house prices depends on the economy as a whole.

Get in touch with us today to speak with the UK’s Best Contractor Mortgage Broker.

What happens when house prices fall?
Falling house prices have the biggest immediate effect on people who want to move.

Some sellers may decide to delay putting their homes on the market. Homeowners who are considering moving may find they have less money to spend.

There were fewer property sales this year than in the 12 months leading up to last summer’s surge in prices before the temporary stamp duty reduction ended.

But if interest rates stay high, an increasing number of people will come off fixed-price mortgages (about 100,000 each month) to new, higher rates.

Some homeowners will find higher these monthly payments unaffordable, making them more likely to sell.

First-time buyers may find properties are more affordable, allowing them to get a foot on the ladder – assuming they can get a mortgage.

But a drop in prices can also send shudders through the finances of those homeowners who are staying put.

At the most extreme, homeowners can end up in negative equity – where the amount they have borrowed is greater than the current value of their property.

With about a third of household wealth tied up in home values, falling prices can make people feel less financially secure, mean they save more than they spend.

Less spending can make an economic slowdown even worse.

Get in touch with us today to speak with a specialist Contractor Mortgage Advisor.

Are people struggling to pay their mortgage?
The number of people in arrears peaked during the 2008 financial crisis, but did not rise significantly during the pandemic, helped by lenders granting payment holidays.

In the worst case, payment difficulties can lead to banks and building societies repossessing houses, although lenders try to avoid this.

More than 200,000 properties were repossessed in the five years after the financial crash.

As a result of the Covid pandemic, repossessions were suspended between March 2020 and April 2021. In the year after they restarted, there were fewer than 4,000.

Does a drop mean a house price crash is inevitable?
When the Bank of England raised interest rates by 0.75 percentage points to 3% on 3 November, it was the biggest single rise in the cost of borrowing since 1989.

After the mini-budget, financial markets were forecasting that the Bank of England’s interest rate would rise above 6% in 2023.

However, traders now expect the peak to be under 5%. You can use the mortgage calculator above to see how big an effect those kinds of changes can have on monthly repayments.

In the early 2000s property boom, 100% mortgages and cashback offers were not uncommon.

But after the 2008 financial crash, mortgage lending rules were tightened.

As a result, loans should leave more room for prices to fall before borrowers are stuck with negative equity.

Most recent borrowers have also had their ability to pay checked against interest rates even higher than the ones we’re seeing at the moment.

By Robert Cuffe & Christine Jeavans

Source: BBC News

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House price growth set to drop into negative territory

The UK’s current house price inflation has slowed to 7.8%, the slowest rate of growth recorded since November 2021, according to Zoopla.

Following October’s mini budget which then saw the property market stall, the property portal says that the housing market is transitioning from an unsustainably strong market to one more balanced, albeit with affordability challenges for homebuyers most reliant on mortgage finance and a weaker economic outlook for 2023.

Buyer demand has dropped 44% year-on-year with a slower decline seen in sales at -28%, which are now back to pre-pandemic levels.

New sales have fallen by up to 50% in the previous market hotspots and high-value areas where higher mortgage rates will hit buying power hardest such as the mid to upper price bands in Southern England (excluding London), East Midlands and Wales. Sales have fallen less in more affordable areas and London where market conditions have been weaker.

Agents will welcome the fact that more homes are coming to the market for sale with the total stock of homes available up 40% vs 2021 – but still almost 20% below pre-pandemic levels and rising supply will boost choice for consumers.

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House price inflation is losing momentum fast, with more recent trends over the last quarter growth rates running at less than a third of the last year. However, Zoopla’s data is yet to record price falls over the last three months across UK countries, regions or major UK cities.

The property website expects price growth to dip into negative territory in H1 2023 as the market adjusts to weaker buying power and concerns over the economic outlook.

It adds that sellers now have to accept discounts to asking prices in order to achieve a sale – a trend that has become more apparent in recent weeks.

The average price achieved in recent weeks has been 3% below asking price when for much of 2021 and the first half of 2022 it has been 0%. Zoopla expects discounts to widen further in 2023.

The portals says that history shows that when discounts reach 5-6% this points to flat to falling prices., it is important sellers who want to achieve a sale are realistic on selling prices and speak to agents for the right advice for their home.

Falling demand and sales mean new and current sellers are being forced to set asking prices at more realistic levels to help secure buyer interest. 1 in 10 homes (11%) have recorded a price reduction of 5%+ (although this remains below 2018 levels) and 1 in 4 (25%) have experienced a price reduction of any size since 1 September 2022.

Asking price reductions are greatest in Southern England, where sales volumes have fallen the most with almost 1 in 3 homes in the South East and East of England reducing asking prices to attract more demand.

The outlook for mortgage rates is the most important factor for home buyers and those planning to move in 2023.

Get in touch with us today to speak with a specialist Contractor Mortgage Advisor.

Looking ahead, Zoopla expects sales volumes to drop back to 1 million over 2023 (from 1.3m in 2022) with house price falls of up to 5%, concentrated in the high-value markets most sensitive to higher borrowing costs

Richard Donnell, executive director at Zoopla, said: “The housing market is adjusting to a reset in the level of mortgage rates but the likelihood of double-digit house price falls at a UK level remains low.

“While the outlook for house prices is weak, we see a shift to more needs driven motivations to move in 2023 and beyond which will support sales volumes. Ongoing pandemic impacts, increased labour market flexibility plus more retirement will continue to encourage moves. Cost of living pressures will compound these trends encouraging homeowners to consider their next move. The rapid growth in rents, which shows little signs of slowing, will add to cost-of-living pressures and add continued impetus to first time buyer demand.

“Sharing advice for sellers looking to list their home for sale, Polly Ogden Duffy, Managing Director at John D Wood & Co. comments: “Tidy up, freshen up, and clean up! Presentation is everything when it comes to selling a home in a competitive market. As well as setting realistic expectations on the price you will achieve. If your property comes with a compromise, such as having a small garden, it’s on a busy road, or it requires a replacement kitchen or bathroom – you need to price accordingly. Competing with other properties at the same price point that come without these drawbacks, will only mean that yours will be last to sell. A combination of waiting too long to adjust your price, and more property coming to the market in the New Year will only provide even more choice for buyers.”

By Marc Da Silva

Source: Property Industry Eye

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UK records steepest house price fall in nearly two years, Halifax figures show

The UK has recorded the biggest monthly fall in house prices since early 2021, according to an index.

The average property’s value fell by 0.4% in October, marking the third month-on-month drop seen in the past four months, Halifax said.

October’s month-on-month decrease follows monthly falls of 0.1% in both July and September and a 0.3% increase in August.

Meanwhile, annual house price growth slowed to 8.3% in October, from 9.8% growth recorded in September.

Across the UK, the average house price in October was £292,598, which was the lowest figure since May this year, although typical prices remained near record highs, according to the lender.

Elsewhere, annual price growth among home movers fell to 8.9% in October, from 10.3% in September.

The price growth slowdown for first-time buyers was more notable, slowing from 10.1% in September to 7.5% in October.

Given the greater challenges for first-time buyers in deposit-raising, plus tighter requirements for higher loan-to-value mortgages, the faster slowdown in prices is not surprising, the bank said.

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Kim Kinnaird, director of Halifax Mortgages, said: “Though the recent period of rapid house price inflation may now be at an end, it’s important to keep this in context, with average property prices rising more than £22,000 in the past 12 months, and by almost £60,000 [25.7%] over the last three years, which is significant.

“While a post-pandemic slowdown was expected, there’s no doubt the housing market received a significant shock as a result of the mini budget, which saw a sudden acceleration in mortgage rate increases.

“While it is likely that those rates have peaked for now – following the reversal of previously announced fiscal measures – it appears that recent events have encouraged those with existing mortgages to look at their options, and some would-be homebuyers to take a pause.

“Understandably we have also seen consumer caution grow as industry data shows mortgage approvals and demand for borrowing declining.”

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Last week, the Bank of England (BoE) increased the base rate to 3%, from 2.25% previously.

This was the latest in a string of base rate increases, meaning that since December last year the average monthly tracker mortgage payment will have increased by £284.17 in total, according to figures from trade association UK Finance.

Andrew Simmonds, director at Bristol-based Parker’s Estate Agents, said: “Since the summer, I’ve been telling vendors that their house is worth what it was worth 12 months ago. I’ve lost instructions because they’ve said ‘nah’.”

He added: “Plenty have since come back to me saying: ‘You were right’.”

Source: ITV News

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Mortgages difficult for self-employed say advisors

A new survey of mortgage advisors has found that the majority of them think that lenders are making it more difficult for self-employed people to get a mortgage, despite growing numbers opting for self-employment.

United Trust Bank carried out this survey and nine of every 10 advisors that responded to it said that the eligibility criteria for people who are self-employed has been made much stricter by mortgage lenders. In total, 91% of the advisors who took part in the survey told the bank that it is now harder than ever for the self-employed to secure a loan.

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This survey was part of a new report published by the bank that has been titled ‘Growing opportunities for brokers in the specialist mortgage market.’ The premise is that lenders outside of the big-name ones might offer a way for those with complicated financial and employment situations to get onto the property ladder.

According to Mortgage Strategy, this report goes on to argue that such people:

“Are a group which will continue to grow and that having lenders sufficiently skilled-up and with an appetite to cater for these customers is vital.”

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This is supported by the available evidence, which shows that self-employed numbers in the UK had reached 4.2 million by March of this year. These figures are provided by the Office for National Statistics.

Many mortgage advisors who have CeMAP training are already aware of the need to look to specialist lenders to meet the mortgage needs of self-employed clients and others with complex circumstances.

Source: Beacon Financial Training

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How to understand what’s going on with UK mortgage rates

The UK mortgage market has tightened as confidence in the economy has faltered in recent weeks. Lenders withdrew more than 1,600 homeloan products after the (then) chancellor Kwasi Kwarteng’s September mini-budget sent the UK economy into a tailspin.

Rates on the mortgage products that are still available have risen to record levels – average two-year and five-year fixed rates have now passed 6% for the first time since 2008 and 2010 respectively.

The Bank of England has intervened to try to calm the situation. But this help currently has an end date of Friday 14 October, after which it’s unclear what will happen in the financial markets that influence people’s mortgage rates.

This is a crucial issue for a lot of people: 28% of all dwellings are owned with a loan, with mortgage payments eating up about a sixth of household income, on average.

Looking at how the market has developed over time can help to explain how we got here and where we are going – which is basically headfirst into a period of high interest rates, low loan approvals and plateauing house prices.

All financial markets are driven by information, confidence and cash. Investors absorb new information which feeds confidence or drives uncertainty, and then they choose how to invest money. As the economy falters, confidence erodes and the interest rates that banks must pay to access funding in financial markets – which influence mortgage rates for borrowers – become unpredictable.

Banks do not like such uncertainty and they do not like people defaulting on their loans. Rising interest rates and uncertainty increase their risk, reduce the volume of mortgage sales and place downward pressure on their profits.

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How banks think about risk
Once you understand this, predicting bank behaviour in the mortgage market becomes a lot easier. Take the period before the global financial crisis of 2008 as an example. In the early 1990s, controls over mortgage lending were relaxed so that, by the early 2000s, mortgage product innovation was a firm trend.

This led to mortgages being offered for 125% of a property’s value, and banks lending people four times their annual salary (or more) to buy a home and allowing self-employed borrowers to “self-certify” their incomes.

The risks were low at this time for two reasons. First, as mortgage criteria became more liberal, it brought more money into the market. This additional money was chasing the same supply of houses, which increased house prices. In this environment, even if people defaulted, banks could easily sell on repossessed houses and so default risks were less of a concern.

Second, banks began to offload their mortgages into the financial markets at this time, passing on the risk of default to investors. This freed up more money for them to lend out as mortgages.

The Bank of England’s base rate also dropped throughout this period from a high of 7.5% in June 1998 to a low of 3.5% in July 2003. People desired housing, mortgage products were many and varied, and house prices were rising – perfect conditions for a booming housing market. Until, of course, the global financial crisis hit in 2008.

The authorities reacted to the financial crisis by firming up the mortgage rules and going back to basics. This meant increasing the capital – or protection – that banks had to hold against the mortgages they had on their books, and strengthening the rules around mortgage products. In essence: goodbye self-certification and 125% loans, hello lower income multiples and bulked-up bank balance sheets.

The upshot of these changes was fewer people could qualify to borrow to buy a home, so average UK house prices dropped from more than £188,000 in July 2007 to around £157,000 in January 2009. The damage was so deep that they had only partially recovered some of these losses to reach £167,000 by January 2013.

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New constraints
Of course, prices have boomed again more recently. This is partly because banks had slowly started to relax, although with less flexibility and more regulation than before the global financial crisis. This reduction in flexibility cut product choice, but low interest rates and low monthly payments have encouraged individuals to take on more debt and banks to grant more mortgages.

Availability of loans fuels house prices so the cycle starts again, although within a more regulated market this time. But the result has been largely the same: average house prices have risen to just shy of £300,000 and the total value of gross mortgage lending in the UK has grown from £148 billion in 2009 to £316 billion by 2021.

But when new information hit the markets – starting with Russia’s invasion of Ukraine earlier this year – everything changed and confidence tanked. The resulting supply-side constraints and spiking fuel prices have stoked inflation. And the very predictable response of the Bank of England has been to increase interest rates.

Why? Because increasing interest rates is supposed to stop people spending and encourage them to save instead, taking the heat out of the economy. However, this rise in interest rates, and therefore monthly mortgage payments, is happening at a time when people’s disposable income is already being drastically reduced by rising fuel prices.

Mortgage market outlook
So what of the mortgage markets going forward? The present economic situation, while completely different from that of the 2008 financial crisis, is borne of the same factor: confidence. The political and economic environment – the policies of the Truss administration, Brexit, the war in Ukraine, rising fuel costs and inflation – has shredded investor confidence and increased risk for banks.

In this environment, banks will continue to protect themselves by tightening product ranges while increasing mortgage rates, deposit sizes (or loan-to-values) and the admin fees they charge. Loan approvals are already falling and cheap mortgages have rapidly disappeared.

Demand for homeloans will also keeping falling as would-be borrowers are faced with a reduced product range as well as rising loan costs and monthly payments. Few people make big financial decisions when uncertainty is so high and confidence in the government is so low.

Optimistically, the current situation will cause UK house prices to plateau, but given the continued uncertainty arising from government policy, it’s realistic to expect falls in certain areas as financial market volatility continues.

Source: The Conversation

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Truss to announce stamp duty cut – report

UK housebuilders rallied on Wednesday following a report that Friday’s mini-budget could include a plan to cut stamp duty.

According to The Times, prime minister Liz Truss will announce the move in the mini-budget in an attempt to drive economic growth. It was understood the PM and chancellor Kwasi Kwarteng have been working on the plans for more than a month.

Truss believes that cutting stamp duty will encourage economic growth by allowing more people to move and enabling first-time buyers to get on the property ladder, The Times said.

It cited two Whitehall sources as saying that cuts to stamp duty were the “rabbit” in the mini-budget, which the government is billing as a “growth plan”.

Under the current system, no stamp duty is paid on the first £125,000 of any property purchase. Between £125,001 and £250,000 stamp duty is levied at 2%, £250,001 and £925,000 at 5%, £925,001 and £1.5m at 10% and anything above £1.5m at 12%. For first-time buyers the threshold at which stamp duty is paid is £300,000.

During the pandemic, then chancellor Rishi Sunak lifted the stamp duty threshold to £500,000.

At 0910 BST, Persimmon shares were up 5.4%, while Taylor Wimpey and Barratt were up 4% and Berkeley was 3.5% firmer. On the FTSE 250, Redrow was 5.6% higher, while Bellway and Crest Nicholson were up 3.6% and 3.4%, respectively.

Tom Bill, head of UK residential research at Knight Frank, said: “Nobody can accuse the new government of lacking an economic vision. If its low-tax approach extends to stamp duty, recent history tells us it will trigger higher levels of demand in the housing market at a time when mortgages are getting more expensive, which will support social mobility.

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“Prices could move higher in the short term if supply initially struggles to keep up but more balanced conditions will return provided the cut is immediate and permanent.”

Neil Wilson, chief market analyst at Markets.com, referred to the potential stamp duty cut as “the old Tory trick of juicing the housing market in its heartlands to boost confidence (wealth effect) whilst doing not a lot for housing supply”.

“I’m not for concreting over the green belt at all, but there will be questions about the economic soundness of this policy, as there always is. However, with interest rates rising so quickly, an offset to the cost of buying a home would grease the wheels of the market -without higher rates could cause the housing market to seize up.”

He added: “Clearly a stamp duty cut is good news for housebuilders who can expect higher selling prices as a result.”

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, argued that a stamp duty cut could do more harm than good.

“Buyers are unlikely to be unhappy at the prospect of a tax cut, but if the government chooses to cut Stamp Duty in an effort to stimulate the housing market, there’s a risk it could do more harm than good.

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“It’s easy to see why the government is concerned about the housing market. We’ve seen demand fall consistently since May, when rocketing bills, rising house prices and ever-increasing interest rates started to take a toll on buyer enthusiasm. There’s a risk that if rate rises accelerate, pressure on buyers could reach a tipping point, where demand dries up.

“We know from very recent experience that a Stamp Duty holiday can stimulate demand. However, the only reason these holidays work is because people feel they have a small window of opportunity to take advantage, otherwise they’ll miss out. The point at which they think they can just wait for the next one, they will start to become less effective.

“Even if it does stimulate demand, it overlooks the fact that the real brake on the property market is a severe shortage of supply. With an average of 36 properties on each agent’s books, we’re still close to an all-time low in the availability of property for sale. Driving demand without addressing supply would risk more buyers chasing a tiny number of properties, which would push prices up.

“By ramping up prices at a time of rising mortgage rates, the end result would be higher monthly mortgage costs, which would be increasingly unaffordable. And the Stamp Duty holiday wouldn’t help on this front. This in itself could be enough to put buyers off, and if it deters enough of them, it could end up having the opposite impact to the one that’s intended.”

By Michele Maatouk

Source: Sharecast