mortgage hysteria, property market panic and sensationalist headlines

Since Autumn Statement 2022 and in its run-up, contractors have no doubt read the same headlines I’ve seen – those that predict a house market crash, interest rates topping 12 per cent, and mass property repossessions. So, asks John Yerou of Freelancer Financialsshould we all be panicking?

House prices predicted to fall, but by how much?

The Office for Budget Responsibility (OBR) has predicted that house prices could fall by up to 9% by the end of 2024 due to higher mortgage rates and the wider economic downturn. Other economists forecast a UK housing price drop in 2023, varying between:

  • 4.4% by Oxford Economics;
  • 10% by the real estate agent Savills;
  • 12% by the consultancy Capital Economics;
  • 8% by the UK economist at Pantheon Macroeconomics.

But recent headlines from the Guardian, Express and even Bloomberg have stated that house prices could fall by as much as 20%. These outlandish claims have only added fuel to a furnace of panic and hysteria!

Yes, there are going to be differences of opinion. Goal 20%? That’s a wild prediction.

A more likely scenario for UK house prices

Personally, I expect house prices to revert to where they were at the end of 2021. The double-digit price declines seen during the credit crunch in 2008 won’t be repeated. There are a number of reasons why I believe this:

  • House prices are being upheld by low housing stocks (low supply vs high demand);
  • Banks are well capitalized with liquidity and funding, unlike during the financial crisis in 2008;
  • Unemployment remains low;
  • Lenders are working closely with distressed homeowners to minimize repossessions;
  • Mortgage interest rates are predicted to be less severe than originally forecast for 2023.

Are properties overpriced?

Throughout this most recent period of uncertainty, I’ve maintained that a price correction was inevitable. Even before the disastrous Mini-Budget 2022, I predicted that there was going to be a price correction and a cooling-off period.

My reasoning is that, in the aftermath of the pandemic, there was a surge in demand for properties; many home buyers were paying well over the odds during that period. While I still don’t see a ‘crash’ on the horizon, a 5-10% correction is certainly possible, with levels on transaction lowering.

Housing stock will also determine where house prices go, moving forward. Will people who are currently thinking about buying scale down their ambitions or even put their plans on hold?

Sellers have already started lowering asking prices, but we shouldn’t read too much into this. Price reductions are the norm in the autumn, as sellers strive to wrap up transactions before Christmas.

As long as the banks are well-capitalized and liquid, the property market in the UK is durable. But — as is the case with some of the recent ‘clickbait’ headlines, there will always be doomsters looking to create a storm.

What is happening with mortgage interest rates?

It was a huge relief to see swap rates (the interest rates that lenders might pay) remain benign as the Bank of England base rate rose. This meant lenders didn’t need to pull products or raise rates following Autumn Statement 2022.

The big positive for me is that the initial predicted base rate of 6% (following the Truss/Kwarteng Mini-Budget) has now been dismissed. Moreover, in the past week, economists have stated that even the 5% forecast by the OBR in the Autumn Statement is “implausibly high”. As an example, Pantheon Macroeconomics has forecast the base rate to peak at 3.7% at the end of 2024.

Continued market stability and the downward trend in swap rates have meant that lenders have been able to make further rate reductions on many interest rates across their mortgage range. Experts predict that lenders will continue to improve rates as they look to increase the number of mortgage applications currently in circulation.

Movement we’ve seen first-hand

Over the past few weeks, we’ve begun to see the more recent predictions realized: lenders are upping their game with mortgage interest rate reductions. They’ve been coming thick and fast over the past few days, and many lenders who’ve been stalling are now pushing mortgage applications through. And the sentiment is that these trends will continue over the coming weeks and months.

We’re now seeing mortgage providers offering rates below 5% for both remortgage and house purchase mortgages. This is positive news for borrowers buying a home or looking for a new deal.

Only today, contractor-friendly lender Nationwide announced rate reductions across their entire range. This includes a 5-year fixed rate at 60% LTV reduced by 0.26% to 4.93%, with a £999 fee and a 2-year tracker rate at 80% LTV reduced by 0.15% to 3.94%, with a £999 fee.

This is a huge improvement on October when the average fixed-rate deal being quoted from lenders was 6.5%.

What about Stamp Duty changes at Autumn Statement 2022?

The chancellor said on November 17th 2022, that the increase to the stamp duty threshold to £250,000 introduced in the Mini-Budget by his predecessor would remain in place until March 31, 2025.

Stamp Duty Land Tax rates (applicable on main residence only):

The big difference now is that changes to Stamp Duty made in the Mini-Budget are no longer permanent.

Chancellor Jeremy Hunt said: “The OBR expects housing activity to slow over the next two years, so the stamp duty cuts announced in the mini-budget will remain in place but only until March 31, 2025.”

Price SDLT rate
Up to £250,000 (or £425,000 for first-time buyer) Zero
£250,001 to £925,000 5%
£925,001 to £1.5 million 10%
1.5 million and above 12%

Although this is disappointing, many experts are confident that by 2025, the UK’s economy and the housing market with it would have turned a corner. So perhaps at the least the SDLT changes represent one area that even the most sensationalist headline-writers will struggle to work their magic on!

Finally, for the record…

Everything in the way of my predictions above is just that: a forecast. That are too many variables across the globe to paint a precise picture of what’ll happen next month, let alone next year.

I’d much rather have waited until December to reach for my crystal ball, as by then the consequences of Autumn Statement would have time to filter through lenders and into their mortgage ranges.

But I get it. Many contractors have held off remortgaging or buying/moving homes due to recent uncertainty and want answers and advice. I hope my opinions, based on many years at the cutting edge of contractor mortgages, bring a little light to where there has only recently been murk, panic, hysteria and sensationalism.

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