Everywhere we turn right now, we are reading terrifying tales of crashing property markets, and quite frankly, it’s driving us a bit potty. It’s scaremongering, and it’s not particularly accurate.
It has been a mad two years in so many ways, and the property market is one of the industries that has undoubtedly seen many changes. It would be a lie to say that it has been a smooth ride. So, let’s reflect on those changes and consider what we believe the rest of the year will hold. Is it really all doom and gloom? Is the property sector heading for more downs than ups? Let’s not be dramatic; instead, let’s look at the facts…
So, what has been going on?
We all know that interest rates have soared; they have risen from 0.1% to 1.25% since December last year – their highest level for 13 years. Predictions for later in the year are for a continued increase, with some saying it will peak at 1.75% and others discussing a worrying 3% – such a daunting prospect for so many people looking to take their first steps on the property ladder. But it’s also worth putting a few things into perspective and balancing out all aspects of this discussion. Yes, Interest rates ‘may’ continue rising for some time, which could be a hardship for some homeowners and property investors. But a crash in the housing market? This loose prediction seems pretty unlikely, in our opinion. As we mentioned before, and at risk of repeating ourselves, this is scaremongering at its best. You see, interest rates are only one of the many factors that affect someone’s decision to purchase a property and don’t always have the impact that you may expect.
Let’s strip it back to the basics of why interest rates have gone up in the first place. Let’s examine why everything has increased in price so dramatically and why cornflakes now cost nearly as much as a new Rolex. In Lamin’s terms, it’s due to the economy reopening and consumers spending again. As we have highlighted already, 2021 was a crazy year for the property sector. Thanks to the stamp duty holiday and record lows in interest rates in 2021, buyers could purchase properties without paying as much extra tax. This was massive news within the property sector and exciting times for those looking to buy their first home.
What impact did Covid-19 have on buying trends?
The Covid-19 Pandemic also impacted the property market and the rise in house purchases. During this time, there was a rapid rise in the desire for a new space. More and more people were opting to work from home, and the housing market in the UK continued to soar sky-high. People started moving out of cities as flexible working became the norm. Workers no longer needed to be within commuting distance of an office and could work remotely from the comfort of their own homes…wherever they wanted that to be! Many craved rural life with no sniff of an office or a suit in sight. The desire for more inside space and larger outdoor areas kept growing. Consequently, due to the imbalance between supply and demand, last year also saw the most significant increase in house prices since 2007. In fact, by November, 38% of homes sold for more than the asking price.
But as we moved into 2022, a lot changed again. Rising costs of living and energy prices meant that many people suddenly had less disposable income for a mortgage, especially with house prices increasing so rapidly the previous year. Furloughed employees were also unable to get a mortgage, as lenders were reluctant to offer deals during that period of uncertainty. This cocktail of financial challenges understandably impacted the property market and led to rumours of a crashing market. However, as they do, things have continued to change since then, and it’s not all bleak.
But, what does the future hold?
So, what does this mean for the housing market now? Actually, very little, in our opinion! The rate increase, when passed on to mortgage borrowers, is likely, on average, to cost homeowners less than £100 per month more, which, although nothing to be sniffed at, is not game-changing for many new buyers. The cost of living has increased significantly, but with reduced travel for work, lower commuting costs have helped make this balance a little more comfortable. We aren’t for one minute saying that affordability hasn’t been affected; of course, it has, but so many other factors have kept (and will continue to keep) the property market thriving. Plus, with the end of the furlough scheme in late 2021, those employees who remained in their jobs can now prove income with six months of full payslips; this has led to an increase in mortgage applications in 2022.
Demand is still considerably ahead of supply as people continue to seek new property lifestyles, and we don’t expect to see a reduction in this demand any time soon. Some of those working back in offices again are also moving back to the city. And those who have had long-term changes to home working continue to look at new investments elsewhere, investments which give them a lifestyle they prefer in spacious rural areas. Either way, people are moving…people always move, and nothing will stop them!
Historically, owning bricks and mortar in the UK has been a popular way of keeping assets safe. The UK property market is always seen as a ‘safe haven’, even despite current economic challenges. By historical standards, borrowing remains cheap, and today’s interest rate of 1.25% is still far lower than the average of 7-8% over the past 30 years. Homeowners and investors alike feel safe owning residential property since it tends to hold its value well through times of uncertainty and risk.
Let’s cut to the chase…
We can’t deny that the cost-of-living crisis is affecting a growing number of people across the UK in many ways, but fortunately, the property sector remains strong. Whether property prices in the UK are affected again as people’s budgets reduce, remains to be seen.
Saying all this, we believe that the UK housing market is robust enough to weather any rise in interest rates. The market is still strong, and there is currently little evidence to show that this will change soon. Many buyers are still buying, and lenders are still lending, and that is what makes the magic happen. So, while the future is uncertain, things are ticking along nicely right now. The scaremongering won’t disappear overnight, but we will continue to poo-poo it and do what we do best: sell properties!