Market Comment

crisis, combined with eager sellers meant, there was some movement.

JOSH WOODFIN Property Journalist

In the last two quarters of last year, the UK property market experienced some of the most tumultuous trends seen in recent years. Factors such as the cost-of-living crisis, the pandemic's lingering effects, and the minibudget by Truss and Kwarteng all contributed to the disruption in the property market. As the Christmas lull ends and we move into 2023, many people have questions about the future of the property market. In this article, we attempt to answer some of these questions.

Property Prices

At the end of 2022, property prices across the country dropped for the first time in years and dipped more than usual for this late in the year. Cautious buyers navigating the mortgage market and cost of living

According to Rightmove's last House Price Index for 2022, the average price of property coming to market dropped by 2.1% in December, a bigger dip than usual at this time of year. Rightmove forecasts that prices will drop by an overall average of 2% this year, as a multi-speed, hyper-local market emerges. They believe that some locations, property types, and sectors will fare much better than others. However, the number of views of homes for sale on Rightmove is up 11% compared to this time last year, suggesting there are many potential movers who are monitoring the market in detail and waiting for their moment.

Rightmove predicts an overall drop of 2% in average asking prices next year, as economic headwinds continue to soften activity and lead to a more normal market. Multiple bids will become the exception, not the rule, for many sellers, as buyers who are ready to go bid their time for the perfect property to meet their needs. A 2%drop is a far-cry from some of the headlines we saw around the September minibudget, and we look towards a more even-handed market.

WILL THERE BE A HOUSING MARKET CRASH?

In November 2022, several property experts predicted potential falls in house prices of up to 20%. These predictions were based on various factors, including uncertainty surrounding the Brexit process, a potential global economic slowdown, and tighter lending conditions.

However, it is important to note

Will there be a Housing Crash?

In short - unlikely. The market seems to be moving more toward a two sphere system. As those in lower price brackets on lower average wages are hit more heavily by the move away from cheap borrowing. Those already with capital in their current properties may wince at some higher mortgage costs but it is unlikley to put them off a purchase. More likely is that turnover will drop as people 'wait' for prices and mortgage rates to reduce.

Will Mortgage Costs Decrease?

The average price for a fixed term mortgage at the time of writing was 4.7% based on a 75% Loan to Value. This has come down a touch and it is expected to reduce slightly towards the back half of the year. Though we see such decreases won't have much of an affect on prices. The opportunity cost of missing out on the property a buyer wants will often out-weigh incremental costs - unless it is at the very top of their affordability. Though we expect it to be used heavily in negotiation.

What's happening with Stamp Duty?

Raising the bar for Stamp Duty to £250k from £125k as well as reducing it for first time buyers looking up to properties priced £625k will ease the higher mortgage costs they will be facing. Though it will unlikely bouy the market significantly outside lower price brackets. A complete overhaul of the Stamp Duty tax system would be far better in our opinion. As prices rise the toxicity of the tax is affecting turnover and the economy of the market.

that these are only predictions, and it is difficult to predict the exact trajectory of the housing market.

At the moment, it appears unlikely that there will be a housing market 'crash' in the UK. There may be local or regional anomalies, but overall, the market looks to be heading towards more modest decreases as buyers and sellers find themselves on more even footing. The settling political landscape has allayed some of those fears. But super low-interest mortgages are not coming back any time soon, and the market will take some time to stabilise.

There are several reasons why the housing market is expected to stabilise, rather than crash. For one, the UK government has been taking steps to address the supply shortage in the housing market, which has been a major contributing factor to the rise in house prices. These measures include increasing the number of affordable homes, incentivizing developers to build more homes, and making it easier for people to self-build.

Additionally, the UK government has introduced various policies to help people get onto the property ladder, including the Help to Buy scheme, which provides government-backed equity loans to first-time buyers. These policies, along with more competitive mortgage rates, mean that there is still demand in the market, despite the high prices.

However, the market is not without its challenges. One of the main issues is affordability, with many people struggling to get on the property ladder due to the high prices. This has led to concerns about a potential housing bubble, with prices becoming disconnected from the underlying fundamentals of the market. While there are no signs that this is currently happening, it is an issue that needs to be closely monitored.

Another challenge is the impact of the COVID-19 pandemic, which has had a significant impact on the UK economy. While the housing market has shown resilience in the face of the pandemic, there are concerns that a potential third wave or further restrictions could impact the market's recovery.

Overall, the Financial Times writes that house prices are expected to continue to fall this year and into 2024, by perhaps as much as 5%, before returning to growth. While this may be a cause for concern for some, it is important to remember that the UK housing market has historically been cyclical, with periods of growth followed by periods of decline.

In conclusion, while there may be concerns about a potential housing market crash in the UK, it appears unlikely at this stage. The market is expected to stabilise, with more modest decreases in house prices, before returning to growth in the long term. However, it is important to monitor the market closely and take steps to address any potential issues to ensure the long-term stability of the UK housing market.

Mortgage Costs

Mortgage costs are likely to decrease, but only from the dramatic predictions of last year. The days of sub 1% mortgages are over, at least for now. By late 2023, the average fixed rate mortgage rate could hover around 4.5%, according to This Is Money. This will feel like a welcome drop from the current highs of 6%, but still more expensive than the low pricing many borrowers currently on fixed deals will be used to. Around half of UK homeowners are on 2 or 5-year fixed-rate mortgages that are due to expire in the coming months and beyond.

WHAT'S HAPPENING WITH STAMP DUTY AND OTHER FEES?

The Truss and Kwarteng minibudget proposed cuts to Stamp Duty, to make buying property more affordable. The minimum cost of a property that requires stamp duty was raised to £250,000, with that figure rising to £425,000 for first time buyers.

Homeowners need to be prepared for price increases. Steve Griffiths, head of sales at The Mortgage Lender, told This is Money "mortgage borrowers will continue to keep a keen eye on the Bank of England's base rate decisions over the coming months to see how it could impact their future borrowing costs. A mortgage is one of the biggest financial commitments an individual can make, so weighing up whether to fix now or not can be a tricky decision to commit to.

Before this change first-time buyers would only benefit from changes in stamp duty on property worth £500,000 plus. If first-time buyers are buying a property worth more £625,000, they pay the standard stamp duty rates. In short, these mean some good savings that may enable and encourage more people to enter the market. However, in the Autumn budget Hunt announced that these changes will be revoked in 2025, making it more of an extended stamp duty holiday.