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How will the rising Bank of England rate impact the UK property market?

James Quinn, founder of GB Home Surveys, looks at the measures the Bank of England has taken to tame inflation and its effect on the property market.

It is undeniable that the last 12 months have been incredibly difficult for families and businesses across the UK. From soaring energy food prices brought by the ongoing conflict in Ukraine, to the aftereffects of the UK’s departure from the European Union, not to mention former Prime Minister Liz Truss’ disastrous mini-budget, many recent events have spawned significant volatility in the national economy.

This instability has, in turn, caused inflation to shoot up considerably, and it currently stands at approximately 10%. As such, on Thursday 2nd February, the Bank of England announced that it was raising its interest rate by 0.5 percentage points to reach 4%, explaining that this was the best solution for bringing inflation back under control.

While the increase will likely be welcomed by savers, who will experience a healthy boost to their bank balance as a result, it means others will face higher borrowing costs, making an already challenging financial situation even harder for many people.

With economists forecasting that rates will increase further in 2023 – with a potential rise set to be made on 23rd March – it is understandable why many are concerned about the potential impact that high-interest rates will have on the UK’s property market. So far, however, the market has proven itself to be far more buoyant than many had expected it to be.

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Confidence and competition

When the BOE was forced to hike interest rates to 3.5% in the latter stages of 2022, this naturally fed through to mortgage rates as well, making it considerably harder for first-time buyers to secure the funds needed to purchase a home. While the situation was already gloomy for borrowers at this point, Liz Truss’ now infamous mini-budget made things even worse, ramping the level of volatility up to unexpected new heights.

In the wake of the mini-budget, mortgage providers pulled nearly 1,000 products from sale, leading to a significant rise in the cost of a mortgage. Despite this, in the early stages of 2023, it appears that inflation may now have peaked, which is helping to build confidence in the financial markets.

This is highly encouraging for the mortgage market. Confidence means lenders are willing to lend, and borrowers have access to the products that they need as a result. Considering the hole that the mini budget left in lenders’ mortgage books, it is surprisingly positive that lenders are now lending on fixed-rate mortgages below the BoE base rate for the first time in a long time. With more and more lenders starting to do this all the time, a healthy level of competition has resumed in the market, which is advantageous for borrowers who have a wide range of products to choose from.

Property prices remain high

In addition to the signs of positive activity for the benefit of prospective buyers, high-interest rates are also proving advantageous to many homeowners.

The UK property market has long been marked by supply and demand issues, with the number of people looking to get on or move up the housing ladder far outstripping the number of homes available.

This has already kept property prices high and, as of November 2022, the average house price in the UK stands at £294,910, which is a 10.3% rise from the previous year. With interest rates now having risen to 4% as well, it is unlikely that there will be a significant drop in house prices or value any time soon – particularly with experts predicting a lower peak in the BOE rate at 4.5%.

While average house prices have come down a little, they have not fallen as far as many had first anticipated they would. In fact, in some parts of the country, such as the East Midlands and the North West, prices have actually risen slightly. With supply and demand issues persisting – given that the UK is not building homes quickly enough – and interest rates proving better than expected, house prices may not actually decrease by as much as some are predicting.

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Things are looking up

While inflation remains high, the BOE is anticipating that it will fall over the course of 2023, as wholesale energy prices continue to drop. As such, the rate of inflation is not likely to reach the level that many had feared it would. This is not only positive news for businesses and households who have been hit by hefty bills and day-to-day expenses in recent months, but also for the stability of the UK’s property market.

Given the renewed confidence in the financial markets, the healthy level of competition in the mortgage market, and the fact that house prices remain steady across the country, the outlook for the property market is fundamentally positive despite rising interest rates, which is itself a positive signal for the UK’s economy as a whole.

By JAMES QUINN

Source: Property Reporter

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Self-employed saw unaffordable loans jump by a third after mini-Budget: MBT

Mortgage enquiries from self-employed applicants who failed to find an affordable loan jumped by almost a third following last September mini-Budget, data from Mortgage Broker Tools shows.

The criteria platform says that prior to the tax-cutting fiscal event by former Chancellor Kwasi Kwarteng, 28% of mortgage enquiries from self-employed applicants were unable to achieve the loan size requested as they were considered unaffordable.

But after the mini-Budget, this number lifted to 37% of self-employed home loan enquiries that were considered unaffordable by lenders.

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Current Chancellor Jeremey Hunt reversed almost all of Kwarteng’s tax-cutting measures, which had caused UK borrowing on international money markets to rise in October and his Autumn Statement in November, calming rates. The Chancellor presents his full Budget on Wednesday (15 March).

“In recent weeks, competition has returned to the market, with lenders cutting rates and offering more achievable stress testing,” adds the criteria platform.

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Mortgage Broker Tools chief executive Tanya Toumadj says: “As we saw from the mini-Budget last autumn, fiscal policy statements can have a significant impact on financial markets, interest rates and ultimately the accessibility of mortgage finance, so we’ll all be watching closely to see what the Chancellor has to say at the dispatch box.

“It’s unlikely that this Budget announcement will have quite such a dramatic impact on mortgage affordability, but even small changes can have a potentially huge impact on the prospects for individual clients, particularly in the current uncertain economic environment.”

By Roger Baird

Source: Mortgage Finance Gazette

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There is still appetite for lending in the housing market, says top property lawyer

Without a doubt, 2022 was a turbulent year for the UK housing market. House prices may have hit record levels, but the Bank of England created havoc. By December, the base rate had been increased nine times over the previous 12 months, depressing market activity and putting the brakes on property prices.

According to optimists, there will not be a price crash but a soft landing thanks to a 25% fall in mortgage rates over the course of this year. They argue that forbearance measures from big lenders will help struggling borrowers as they switch to interest-only or competitive fixed-rate deals without the need for affordability tests. Since nearly two million people will need to re-mortgage as their fixed-rate deals expire in 2023, this will cushion the blow and reduce the volume of distressed/repossession sales.

Inflationary pressures and a fiscal squeeze have made mortgages unaffordable for many people relative to their incomes. Average UK house prices are now eight-times average earnings, according to Schroders. In London, the ratio rises to 11 times. Nevertheless, the economic mood is gradually moving away from ubiquitous gloom. For example, as the leading indicator of where corporate earnings are headed, UK equity markets have been back on an upward trajectory since November 2022.

A notable shift in sentiment can also be seen in reduced rates for two-year and five-year fixed mortgages: after spiking at 6.5% last October, they have now fallen back towards the 4.5% mark. For potential buyers, interest rates matter because they affect both affordability and lenders’ willingness to lend.

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Several commercial retail lenders such as Santander, Barclays, Nationwide, and Halifax have recently announced mortgage rate reductions to an average of around 4.5%.

When big commercial lenders cut rates, the market becomes more attractive and more affordable for domestic buyers, particularly first-time buyers – and not just to overseas or domestic cash buyers as happened when rates recently spiked. Notwithstanding the media hype about banks planning to reduce their mortgage lending, they still have plenty of appetite to lend.

The market has now fully digested everything that happened during the past year, including the “new normal” level of interest rates. These increases are now priced into people’s thinking, enabling industry professionals to advise with renewed confidence about where rates might be heading.

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History shows that whenever the UK property market is reportedly down, it does not stay down for long. Good properties are not always available: in busier markets, people often lose out because of increased competition, so buyers with available funding should press ahead on properties they really want.

But there is a caveat: incomes will need to rise in real terms in order to increase domestic buyers’ purchasing power. Without that boost, the market may still be more attractive and affordable to overseas and cash buyers.

By Goli-Michelle Banan

Source: Today’s Conveyancer

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Average asking prices for UK homes rose by just £14 in the past month

UK property prices have risen at their lowest-ever rate for February, according to data from the property website Rightmove.

Average asking prices for residential homes rose just £14 between January and February this year.

But the picture was mixed across the country, with prices rising and falling in different regions.

The average increase – effectively zero in percentage terms – is the smallest February rise ever recorded by Rightmove.

Months immediately after Christmas typically see big seasonal price increases, with more people buying and selling homes.

But average prices were still nearly 4% higher compared to a year earlier.

Rightmove said the negligible rise between January and February suggested sellers were realistically pricing their homes in order to sell them in a market that has slowed sharply in recent months.

House prices generally reflect the health of an economy.

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Rising prices help fuel economic growth, whereas falling prices can dent consumer confidence and dampen the economy.

This month mortgage lender Nationwide Building Society reported the longest run of monthly falls in selling prices since the 2008 global financial crisis.

Prices rose at different rates up and down the country, despite the average figure.

The North East, North West, West Midlands, East Midlands and East of England all saw decreases of -0.1%, -0.3%, -0.1%, -2.3% and -0.1% respectively.

Property prices in Scotland spiked by 7.5% over the month, followed by London (2.1%), Yorkshire and the Humber (1.9%), South West (1.6%) and South East (0.7%).

Growth in Wales was flat at 0%.

Tim Bannister, director of property science at Rightmove, said asking prices usually increase at this time of the year, which marks the beginning of the spring selling season.

‘This month’s flat average asking price indicates that many sellers are breaking with tradition and showing unseasonal initial pricing restraint,’ he said.

With asking prices remaining flat – rather than falling – Rightmove says this could be a positive sign that the housing market is not crashing as many analysts have predicted.

Economists polled by the Reuters news agency in November believed prices would drop by 5% in 2023, though even bigger falls have been predicted.

Still, there were some positive signs in the market.

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Property demand was recovering after former prime minister Liz Truss’s botched ‘mini-budget’ in September 2022 which sent mortgage rates soaring.

Sales were up 11% in the first two weeks of February compared to the same period in 2019, Rightmove found.

After Truss’s mini-budget, which was widely criticised for recklessly cutting taxes, the number of sales in the housing market crashed by 30%.

The Resolution Foundation calculates the mini-budget cost the nation £30 billion.

Property sales remain down 11% on pre-pandemic levels.

By Josh Askew

Source: Metro

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Mortgage Approvals Down but Sunnier Days Ahead for The Property Market in 2023

Recent uncertainty in the property market during the closing stages of 2022 has led to the number of mortgage approvals declining by -20% in the past year, while the number of remortgaging approvals has soared as existing homeowners stay put and look to stabilise their financial foundations by borrowing more.

The cost of living crisis and increasing price of borrowing has had a significant effect on the mortgage sector.

In 2021, there were a total of 944,704 house purchase mortgage approvals in the UK. In 2022, this dropped to 753,946 approvals, marking an annual decline of -20.2%.

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Financial concerns induced by the cost of living crisis clearly caused many potential buyers to postpone their plans in 2022, not least due to the fact that mortgage prices shot up seemingly overnight following the shambolic mini budget unveiled by the government in September of last year.

At the same time, the number of remortgaging approvals increased from 460,462 to 539,528 between 2021 and 2022, an annual rise of 17.2%.

This serves as further evidence of public concern brought on by recent economic uncertainties, with more homeowners trying to reduce their mortgage rates or release some equity to fund soaring costs elsewhere in their lives.

These market trends are further supported when analysing the overall monetary value of mortgage approvals.

In 2021, the total value of property purchase approvals was £208bn. In 2022, this dropped to £176bn, a decline of -15.3%.

At the same time, the overall value of remortgaging approvals increased from £92bn to £113bn, marking a 22.6% rise.

However, while the total value of homebuyer mortgages has fallen, the average value of each individual approval has actually increased by 6.2%, from £219,899 in 2021, to £233,510 in 2022.

This shows that while the number of buyers entering the market has fallen, the amount each is borrowing has grown, as they tried to contend with house price highs that were driven by the pandemic market boom and, as of yet, have shown little signs of reducing.

The average value of a remortgaging approval has also increased, rising by 4.6% between 2021 and 2022.

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“Despite house prices continuing to climb in 2022, the immediate economic uncertainty that rattled the mortgage sector following September’s mini budget has had a notable impact when it comes to the number of mortgage approvals attributed to new house purchases in 2022.

At the same time, there has been a notable uplift in homeowners deciding to play it safe and stick with their current home, opting to remortgage in order to improve both their home and their financial stability.

However, mortgage rates are already on the decline so far this year, dropping by -14% in January alone.

On top of that, the wider economic outlook for 2023 is looking far brighter than many people feared towards the end of last year.

All in all, we expect spring and summer to bring sunnier days to the property market and a rejuvenated level of buyer activity to sweep the market.”

Source: Property Notify

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Britain’s biggest homebuilder hoping better mortgage deals could stimulate UK housing market

The average selling price of a Barratt home was up 13.6 per cent to £372,000 in the second half of 2022.

Britain’s biggest housebuilder said better mortgage deals could lead a recovery in the market this year.

Barratt Developments said things could start easing, after reservations dropped 57 per cent in the final months of 2022 – following the disastrous Liz Truss/Kwasi Kwarteng mini-Budget which caused a meltdown in the markets and higher interest rates.

The Leicestershire-based housebuilder has adopted a cautious approach to the year ahead despite a 16 per cent rise in pre-tax profits in the second half of 2022 to £501.6 million (compared to the second half of 2021).

Total sales for the half year were up almost a quarter at almost £2.8 billion – thanks to a “significant step-up” in the average selling price – with the average selling price of a Barratt home up 13.6 per cent to £372,000. The number of new home sales completed was up 7 per cent at 8,626.

The group – which is based in Coalville and includes Barratt Homes, David Wilson Homes and Barratt London as well as the Wilson Bowden commercial property arm – said it had seen a “modest uplift” in reservations this month, though they were still down 46 per cent lower on this time last year.

In recent months mortgage costs have gradually fallen back following actions to stabilise markets – including a new Prime Minister and Chancellor – and signs that wider interest rates may soon be peaking. Five-year fixed-rate mortgages are now available at below 4 per cent.

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Chief executive David Thomas said the “tremendous efforts” of its employees, sub-contractors and supply chain partners had helped it deliver a strong performance in the second half of 2022.

He said: “However, the economic backdrop has clearly been challenging and consumer confidence weakened significantly during the half, which meant we saw lower reservation rates for future sales – particularly in the second quarter.

“Whilst we have seen some early signs of improvement in current trading during January, we will need to see continued momentum over the coming months before we can be confident that these challenging trading conditions are easing.

“Our business remains fundamentally strong, both operationally and financially, with an experienced leadership team, a strong net cash position and a resilient and flexible business model.

“We are well-placed to navigate the challenges ahead and are focused on driving revenue whilst taking a decisive and disciplined approach to costs. As always, our priority is delivering excellent quality and service for our customers.”

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Barratt said if the recovery in demand continues, it expects to deliver total home completions of between 16,500 to 17,000 in 2022-23, down from 17,908 in the previous year.

But house prices are still under pressure with figures on Tuesday showing annual growth slowed to its lowest level in three years last month.

Halifax said the average house price is now more than £12,000 below a peak seen in August last year.

By Tom Pegden

Source: Business Live

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How interest rate rise will affect property market and mortgages

The Bank of England’s decision to hike interest rates to a 15-year high is set to see mortgage payments rise for millions of homeowners.

On Thursday, the Bank confirmed UK rates will rise for the tenth time in a row, to 4 per cent from 3.5, in a bid to control inflation after it reached a record 11.1 per cent in October.

The Bank has faced a tough call over what approach to take, as higher mortgage costs saw the housing market suffer five successive months of falls in property prices.

The IMF reported this week the UK would be the only G7 member to see their economy go backwards this year, with a likely 0.6 per cent contraction. While this would usually lead to calls for interest rates to be cut, the current inflation rate of just over 10 per cent is pushing the Bank to act on its mandate to bring it back towards its 2 per cent target.

Below we look at how the latest interest rate increase could impact the housing market for buyers and borrowers alike.

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HOUSE PRICES

After big increases in 2022, the price of the average property in January was £258,297 – down 0.6 per cent on December, and well below the £281,000 figure from last year.

House prices stalled in September, followed by monthly falls of 1.0 per cent in October, 1.2 per cent in November and 0.3 per cent in December.

Further falls are likely now the Bank of England has approved an interest rate rise for the tenth time in a row, as it will likely push mortgage rates up further.

Higher mortgage rates tend to push house prices down as people are less willing to borrow money.

On Thursday, high street lender Santander warned house prices are set to tumble back to 2021 levels, and has set aside more cash for loan losses as it braces itself for a possible rise in the number of borrowers falling behind with repayments.

The Spanish-owned group is forecasting a 10 per cent fall in house prices this year as interest rate hikes dampen demand.

MORTGAGES

Mortgage rates offered by lenders jumped following the mini-Budget last year and borrowing costs have also been increasing as the Bank of England base rate has risen.

This has resulted in a plunge in the number of mortgages being approved. The Bank reported on Tuesday that 35,000 were given the green light in December compared to 46,000 in November, the UK’s lowest since 2009.

UK Finance estimates that some 715,000 borrowers on tracker mortgages will feel the pinch as interest rates rise again. It estimates householders will be paying around £588 more a year on average as a result of the Bank’s announcement.

In addition, the Office for National Statistics has predicted more than 1.4 million households are facing the prospect of interest rate rises when they renew their fixed-rate mortgages this year.

A string of base rate hikes have taken place over the past year, but borrowers on fixed-rate mortgages were cushioned from their immediate impact. Analysts have said some may get a shock when they come to renew.

Labour has said homeowners could face mortgage hikes of up to £14,000 a year as they come off low fixed-rate deals, adding to the squeeze on living standards.

Analysis by the party shows predicted annual increases in costs for a median house purchase at 80 per cent mortgage in every constituency in the UK.

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WHAT DOES THE GOVERNMENT SAY?

Downing Street acknowledged the interest rate hike could be “difficult” for mortgage holders.

The Prime Minister’s official spokesman said: “Inflation is the biggest threat to living standards in a generation, so we support the Bank’s action today to help us succeed in halving inflation this year.

“We will continue to take the difficult decisions needed to do everything we can to reduce inflation, including not funding additional spending or tax cuts through borrowing, which only serve to fuel inflation further and prolong the pain for everyone.”

The spokesman added: “This is a difficult time for mortgage holders in the UK. As the Chancellor has said, sound money and a stable economy are the best way to deliver lower mortgage rates and keep down the costs of mortgage payments.

“That’s why we are taking the necessary and responsible action to halve inflation, reduce our debt and get the economy growing.”

WHAT DO THE EXPERTS SAY?

Robert Gardner, Nationwide’s chief economist, said: “There are some encouraging signs that mortgage rates are normalising, but it is too early to tell whether activity in the housing market has started to recover.

“The fall in house purchase approvals in December reported by the Bank of England largely reflects the sharp decline in mortgage applications following the mini-Budget.

“It will be hard for the market to regain much momentum in the near term as economic headwinds are set to remain strong, with real earnings likely to fall further and the labour market widely projected to weaken as the economy shrinks.”

Jeremy Leaf, a north London estate agent, added: “The fizz has certainly left the market, leaving behind more serious needs-driven as opposed to discretionary buyers, coming to terms with more stable mortgage rates and greater balance between supply and demand.

“Looking forward, the outlook for house prices remains fairly steady with no expectation of any dramatic change.”

By William Mata

Source: Independent

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There is still promise in the UK housing market – Lawrence Stephens

The UK housing market had a rollercoaster ride last year: house prices hit record levels and the Bank of England’s base lending rate increased nine times in the 12 months to December 2022, rising from 0.25 per cent to 3.5 per cent.

It created a lull in market activity and put the brakes on property prices.

So, what next? Optimists argue that a crash will not happen with current mortgage rates predicted to fall by up to 25 per cent this year. They also point to big lenders such as HSBC, Barclays, Lloyds and Natwest agreeing forbearance measures to help struggling borrowers: switching them to interest-only or competitive fixed rate deals.

Schroders research shows that average UK house prices are more than eight times average earnings; in London, that ratio rises to 11 times. Such stories make good headlines, but the economic mood is gradually changing – from general gloom to a more nuanced outlook.

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Market positives

Notably, the shift in economic sentiment is reflected by reduced rates for new two and five-year fixed mortgages: after spiking to 6.5 per cent last October, they have since fallen back towards the five per cent mark and below.

For potential buyers, interest rates are critical because they directly affect both affordability and lenders’ willingness to lend. After a decade of low interest rates, recent sharp swings have been unsettling.

Assorted lenders – Santander, Barclays, Nationwide and Halifax – now forecast imminent rate reductions to average around 4.5 per cent. Unusually, this comes as the base rate is anticipated to reach four per cent this week.

Mortgage rate cuts by big commercial lenders make the market more attractive and more affordable for domestic and first-time buyers – not just to overseas or cash buyers as happened when rates hit their recent highs. Despite media hype about reducing their mortgage lending, banks still have the appetite to lend.

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A sense of calm

After last year’s shocks, calm has returned. Much has been digested by the market, including the ‘new normal’ in interest rates.

Potential increases are now factored into people’s thinking, so industry professionals can advise with greater confidence on where rates may head next.

Whenever the UK housing market is reportedly ‘down’, history shows it is never ‘out’. Buyers with available funding should press ahead on properties they really want. Good housing stock is not always available: in busier markets, people often lose out because of increased competition. Only those who are not yet able to buy should be waiting.

One caveat arises: UK incomes need to increase in real terms to boost domestic buyers’ purchasing power.

Without that, the market may still remain more attractive to overseas and cash buyers.

By Goli-Michelle Banan

Source: Mortgage Solutions

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Singletons punished by rising mortgage rates as couples now dominate housing market

Singletons are being punished by rising rates leading to 63 per cent of first-time mortgages now being taken out in joint names.

Higher mortgage rates and squeezed budgets mean just 37 per cent of first-time buyers taking out a mortgage are purchasing solo, according to data from the country’s biggest lender, Halifax.

This is a huge change compared to 2014, the earliest year when the data was available, when just 43 per cent of first-time borrowers took out a mortgage jointly while 57 per cent bought on their own.

The increase in costs experienced in the past year has meant that banks are willing to lend less as people’s rising energy and food bills reduce how much they can afford to pay for their home loans each month. Similarly, the higher mortgage rates have also meant people can’t always borrow the same amounts they did when rates were low and pass banks’ affordability tests, particularly if this is based on one salary.

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Although property prices are expected to go down this year, by as much as 10 per cent, they have risen significantly in previous years.

The overall number of first-time buyers is still higher than pre-pandemic levels but down 11 per cent on 2021’s record high of 405,320, sitting at 362,461 in 2022.

Prices were unusually high in 2021 thanks to the “race for space” – pent up demand from the pandemic and Government measures to ease stamp duty costs, leading to a record number of first-time buyers getting the keys to their first home.

This is now easing somewhat, but affordability is still a problem with average property values for first-time buyers now around 7.6 times the average UK salary.

Separate data from the Office of National Statistics last year showed house prices grew faster than earnings in 91 per cent of local authority districts, leading to a reduction in housing affordability in these areas.

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Kim Kinnaird, mortgages director at Halifax, said: “Today, getting your own place for the first time will likely mean paying over £300,000 for that new home, and putting down, on average, a £62,000 deposit.

“The length of time needed and cost of raising a deposit are likely having an impact on the profile of the average first-time buyer over time. Today, those starting out on the housing ladder are 32 years old on average – two years older than a decade ago – and almost two thirds of people are now getting their first mortgage in joint names.”

The average two-year fixed-rate mortgage interest rate is 5.49 per cent, compared with 2.38 per cent last January, according to Moneyfacts, while a five-year deal is at 5.26 per cent, compared with 2.66 per cent 12 months earlier.

By Grace Gausden

Source: i News

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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.

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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.

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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.