House Price Crash? Wilson & Co Homes

The most expensive house in the Hamptons sold for £835,000 this year, a rise of 23.7% from when it was bought in 2016. 237 properties sold in the Hamptons last year, compared to 386 the previous year. A total of 4796 properties have sold in the Hamptons since 1995

Is Hampton heading towards a house price crash?

Peterborough house prices rose by 1.1% last month, according to the Land Registry. This means the annual rate of house price growth in Peterborough has eased to 4.9%, dropping slightly from the 5.7% yearly rate recently experienced. This is still decent growth in local house prices, yet the ‘pedal to the metal’ growth rates seen only a few months ago do appear to be easing.

Looking at the national figures, many people were concerned the property market was overheating as spring saw annual growth of 9.9%, the highest rate of house price growth since June 2007. A few months later the Credit Crunch hit, with a drop of 18.7%.

Government economic measures such as the Furlough Scheme and the Stamp Duty Holiday have so far shielded the Peterborough property market from the worst economic recession since 1709.

Can this growth continue? Or is this the start of a crash?

Looking at the number of For Sale boards turning to sold at rapid speed, shows this market is not maintainable. Most looking to move home have brought forward their moves because of the Stamp Duty Holiday and the lifestyle choice of wanting a bigger garden/office space at home.

Nonetheless, the doom-mongers in the press say there will be a second wave of house sellers that will flood the property market when furlough ends. They believe many of the 2.4m people still on furlough will be made redundant when furlough finishes unfortunately forcing them to move home.

This was the catalyst for the slump in 2008/9.

But surely, if house prices are rising, won’t homes become unaffordable?

Well, with low-interest rates, this means homes are still relatively affordable. In 1989, the house price to earnings ratio was 5.4 to 1 (i.e. the average house was 5.4 times the average UK salary), whilst today that stands at 8.8 to 1. It’s no wonder some people are concerned there will be a house price crash (as in 2008 the ratio hit 7.5 to 1).

So, if the issue is not the affordability, what could be the problem for Peterborough homeowners?

Interest rates!

Bank of England interest rates will affect what people pay on their mortgage. Interest rates are used to reduce inflation after all.

UK inflation has just gone through the 2% barrier, and I believe by the end of this year or early next, it will touch 4% or 5%. In normal circumstances, this would trigger the raise on interest rates. Yet, we had a similar scenario in the late 1980s/early 1990s with a spike in inflation to 8.5% due to a shortage of raw materials and labour, but this was soon sorted out, and inflation dropped quite quickly thereafter. In the coming year, a shortage of raw materials might be an issue. If there is a shortage of raw materials, this will fuel construction and manufacturing costs upwards.

Next, will there be a shortage of labour? Some say it won’t be an issue (as unemployment will be higher), yet there are certain sectors of the economy that have an imbalance of trained staff of specialised jobs or people not wanting work in that type of job in the first place.

by James Dawson

But how will increased interest rates affect the property market?

Thankfully, 91% of all new mortgages being written are fixed interest rate and 78% of all existing UK mortgages are fixed-rate (compared to 32.8% in the credit crunch) ... meaning we won’t have so many houses being dumped on the market.

And that’s the key … unemployment combined with high-interest rates caused many homeowners to put their property onto the market in 2008/9. Tied in with curtailed demand for property...we had an oversupply and subdued demand of Peterborough homes - causing prices to drop by 16% to 19%. So, a good bellwether and indicator is the number of Peterborough properties for sale at any one time.

There are only 874 properties available to buy in Peterborough today, low when compared to the 14-year average of 2,173 properties for sale, whilst at the height of the credit crunch, there were 4,883 properties for sale at one point.

As we look to the future, if you want a crystal ball of what will happen to the Peterborough property market ... you won’t go that far wrong by getting yourself on the property portals and seeing how many properties are for sale.

These are my thoughts …We would love to know yours?

If you would like any help or advice on your property sale, purchase or current market activity please don’t hesitate to get in touch via your preferred method.