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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.

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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.

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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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Vendors told to ignore estate agency calling for a 10% cut to asking prices

Following the recent drop in buyer demand, vendors have been advised to slash their asking price by 10% as rising mortgage rates make homes unaffordable for many buyers.

Sellers need to be “realistic” in a cooling property market, Leeds-based estate agency HOP warned last week, as economic uncertainty takes its toll on the housing market.

Luke Gidney, managing director of HOP, told the press: “You need to be really realistic as a seller, if you want to sell your property you need to be realistic and consider a 10% reduction on what you would have done six months ago.”

The estate agent’s advice follows months of economic uncertainty, which looks set to continue after the Bank of England said that the country faced one of its longest-ever recessions, and interest rates were hiked to 3%. Economists at Capital Economics predicted the day before the rate rise that house prices would drop by 12% by 2024.

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“The problem we’ve got right now is the interest rates are making these properties unaffordable,” Gidney added. “There’s still interest out there, but people are genuinely worried. I think the combination of the fuel crisis, the cost of food, inflation and mortgage rates, I think people are extremely worried about it, and they are putting off these big decisions and maybe sitting on their hands for a bit.”

He said the sentiment among some first-time buyers was “why buy now when prices next year might be 10, 20, or 30% lower?”

He added that he knew of multiple buyers dropping out after an agreement because they were rethinking their decision.

But Tom Cranenburgh, who runs GetanOffer, said sellers should hold their nerve.

He commented: “We’ve certainly seen buyer enquiries drop off lately, but I’ve got a feeling this is just temporary. There are still lots of people who’d love to buy a home. If things get more stable soon, big price reductions shouldn’t be needed.

“There’s a simple reason why some are suggesting doing this and that’s overpricing. Some, in fact many agents, have at one time or another been guilty of overpricing property either with the owner’s blessing or worse, to get the property on the books. Many estate agents wrongly think it’s better to get a seller on the market [usually with a fixed term contract] and bring the price down later, than it is to be honest about price and lose the business to someone who isn’t.

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“With the possible exception of a handful of sellers who are truly desperate, or who have discovered a defect with the house that necessitates a big drop, sellers chopping 10% off were never going to get their price, whatever the market conditions.”

Jonathan Rolande, the founder of property firm House Buy Fast, agrees. He added: “There’s no doubt the property market is under immense pressure right now and the time of year doesn’t help either, dark afternoons and Christmas are ahead of us.

“But if your agent is suggesting you knock 10% off the price of your most expensive asset, ask them why.

“Why, when the market is down less than 1% is this necessary? If they were the agent that suggested the price in the first place, I’d suggest you always get a second and third opinion first.”

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