We have to caveat this article with a fact you’re probably already aware of - things in the property market are changing fast. Factors from all corners are putting pressure on leading to a lot of shouty headlines, some scary looking numbers and a lot of conflicting opinions. We’d love to be able to lay out a 3, 6 and 12 monthly roadmap of all the events that are going to happen and the changes in prices they might cause, but unfortunately we can’t. Anyone who says they know what’s going to happen this winter, or beyond is lying. Instead, we’ll try to equip you with some facts and grounded opinions based on insight that will help you better understand what’s happening and potentially where it might lead the property market. But one thing we do know is whether you’re a buyer or a seller, it’s going to be interesting.
In June, the Office for National Statistics revealed UK inflation rose again to the highest rate in 40 years. ONS statisticians reported that inflation rose from 9% in April to 9.1% in May. How does this affect the housing market? Simply put, if the price of goods and services rise, inflation can drive house prices up. If people are spending more on living, they have less to spend on a potential new home, so potential buyers, especially first-timers, can be priced out of the market. Some economists have suggested that inflation could rise to over 13%. On top of that, in August the Bank of England said the UK was on the brink of a recession after hiking interest rates to 1.75% (at the time of writing). This means people on tracker and variable mortgages could end up paying hundreds more. The lion’s share of homes in the UK are on fixed rate mortgages, so are insulated from the interest rate rises, for the time being. But 40% of those are set to expire this year or next, which will leave millions in danger of high interest rates on new mortgages.
“The people who are going to feel this immediately are on the variable deals — particularly those on standard variable rates,” said David Hollingworth, associate director at L&C Mortgages, speaking to the Financial Times in August. “But there’s not too much room for complacency for those who are on fixed rates, which have been moving astonishingly quickly since the end of last year.”
“The people who are going to feel this immediately are on the variable deals.”
One of the main factors of this rise in interest rates and gloomy outlook is the ongoing energy crisis, brought about in large parts by the war in Ukraine, with Russia choking Europe’s supply of energy. Consumer champion, Martin Lewis has been vocal about the coming winter and rising energy costs, describing them as “a national crisis.” Ofgem announced in August that it would be changing the way it calculates the energy price cap, saying it will now be updated quarterly rather than every six months to provide stability to the energy market and to avoid smaller suppliers going bust by allowing them to charge customers higher prices more quickly as the cost of gas increases. This in part, led consultancy Cornwall Insight to warn that energy bills for a typical household could hit £4,266 next year in January.
This would mean the average household would be paying about £355 a month, instead of £164 a month currently. The latest price cap is due to be announced at the end of August (at time of writing). Cornwall expects a rise to £3,582 a year, compared to the regulator’s prediction of £2,800 a year. Then there’s the UK’s new Prime Minister. By the time you read this, either Rishi Sunak or Liz Truss will be in Number 10. During their campaigns, neither candidate tabled a solution to the energy crisis, but one thing’s for sure, it will be high on the to do list of whoever wins the vote, whether they like it or not.
So yes, there’s quite a bit of uncertainty in the UK at the moment, but what does it mean for the UK property market? The average price of property coming to market saw a sixth consecutive record in July, rising by 0.4%, or £1,354, according to property site Rightmove. In London, Camden saw the biggest monthly increase across all of the capital, with properties coming to market with a £1,031,999 average price tag, a 3.3% increase from June prices. Buyer demand was 26% higher than in 2019 as a desire to move and low numbers of homes for sale drove prices up. This is the longtail of the pandemic still working on the market. The race for space is still very real, with pent up savings from Covid lockdowns still fizzing in many buyers accounts. There was a small uptick of sellers in July, but available stock is still 40% down on where it was in 2019.
Will this change again in the traditionally busy Autumn market? As summer fades and thoughts turn to a big move in time for Christmas, activity usually increases. The ongoing impact of the pandemic continues to support a desire to move. This is a big reason why the market is not slowing as fast as some might expect and demand remains for sensibly-priced homes, especially in more affordable areas. And with inflation set to hit double digits by the end of the year, priorities will shift as people scrutinise their budgets. “The housing market is not immune from higher mortgage rates which we are starting to see increase quickly,” said Richard Donnell, Executive Director of Research at Zoopla. “Buyer interest is expected to slow over the coming months as people tighten their belts and spend with more caution which will see price growth weaken further.”
However, the quality and location of properties are likely to play a part in how fast growth slows in the property market. Some properties will come to market at high valuations in the Autumn – as seller’s look to offload before the market changes again or costs start to bite – before being reduced. Prime locations like leafy commuter towns around London are likely to remain high, but prices will increase at a slower, more reasonable rate. “Buyer interest is expected to slow over the coming months as people tighten their belts and spend with more caution which will see price growth weaken further.”
“Buyer interest is expected to slow over the coming months as people tighten their belts and spend with more caution which will see price growth weaken further.”
Compare that with recent reports about prime central London’s super-rich renters returning to the capital leading to a 13.5% increase and you have an idea of how unpredictable the market is at the moment. Or how about the billion pound construction firm, Bellway, reporting a 13% increase in revenues to a record £3.5bn and 10.5% growth in completions to a record 11,198 in the financial year to the end of July. The company saw a higher than expected rise in the average selling price, which rose 2.6% to £314,000. “Bellway has delivered another strong performance, with volume output and housing revenue reaching record levels against the backdrop of a challenging operating environment and macroeconomic uncertainty,” the chief executive, Jason Honeyman, said.
So if we have advice for you as a buyer or a seller, it’s to keep your own counsel, or that of a trusted agent. Don’t be swayed by headlines, or make any rash decisions. There are no easy answers, but understanding what you want, where you want it, and how much you’re willing to pay or sell for is key. Speak to local experts, keep up to date with the bigger picture, make sensible changes and compromises where appropriate, and we’ll see you on the other side.
