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  • Writer's pictureGavin Human

Are we heading for another property market crash?

As newspapers forecast the end of high property prices and a looming housing market crash, what is really happening?

We continue to see the aftershocks of the September mini-budget and many buyers and sellers are beginning to wonder if a housing market crash is on the horizon, or whether the market will remain strong and defy the many expert opinions, just as it did at the beginning of the Covid pandemic. When Boris Johnson announced the first lock down in March 2020, every newspaper - and most estate agents - predicted Armageddon for the housing market; but history shows the exact opposite happened.

We are in the midst of an unwanted and unprecedented period of uncertainty that is fuelled by the on-going war in Ukraine, the recovery and adapting economy post Covid, and a change of guard with the Government and the cost of living crisis.

There are three key ingredients to the housing market –

  1. Supply and demand

  2. Mortgage availability

  3. Confidence

The third of those is arguably the most important. The severity of the housing shortage means that to make a significant impact on the current housing wait list or for those wanting to get on the property ladder, we need a big increase in the amount of new houses being built. In his recent speech outlining the his vision, Sir Keir Starmer has pledged to drive homeownership up to 70% in the first five years of a Labour government.

Since the mini budget, the Bank of England announced that we will most likely see further rises in interest rate rises despite recently increasing the rate to 2.25% - the seventh consecutive increase. However, many home-owners are on a fixed-rate mortgage and so will not be affected by rising interest rates. In fact, it may encourage some buyers to move now and secure a favourable fixed rate for another five years, helping keep momentum in the market.

Even with interest rates creeping up, it is still significantly cheaper to pay a mortgage than it is to rent. The main issue is the upfront capital that is needed to get onto the housing ladder in the first instance. Many renters are struggling to find the deposit needed to buy a house, and this which is exacerbated by the cost of living crisis.

We have seen many mortgage lenders pulling deals due to the uncertainty of the pound on the international currency markets, and lenders are tightening their criteria, aiming at protecting new borrowers from taking on too high a mortgage. Affordability calculations are used to work out how much a borrower can afford to repay given their personal circumstances and to test whether they could still meet repayments if more pressure was placed on their finances, such as a further rise in interest rates and soaring energy and food prices.

Although the recent headlines around mortgage lending do not make for encouraging reading, there are still plenty of deals out there and if you are nearing the end of your current mortgage deal I would recommend having a free and without obligation chat with Mell Ding from Anglian Financial Services who, with over 30 years of mortgage industry experience is a great person to give you clear, honest and reliable advice. Tel 07918 275037. The days of 2% interest are gone, but there are still plenty of mortgage deals out there.

Hopefully, with the intervention of the Bank of England and the U-turn on the plan to abolish the top rate of income tax for the highest earners, we may see the money markets settle down. Low confidence levels have historically been associated with economic recessions, but according to revised official data the UK's economy actually grew in the second quarter of the year, contrary to an initial reading which said it had shrunk. Economic output rose by 0.2% between April and June according to the Office of National Statistics. Having learned some lessons from the crash of 2008, mortgage lenders are now much more stringent on ensuring potential buyers can afford their mortgage and properties are not as over mortgaged as they once were. This has reduced general risk in the market.

Post-pandemic, we continue to see London buyers swapping city living for country living in and around Cambridge. Buyers also have different needs and desires: a new hybrid working week for many means professionals or families can expand their search area from the city centre to seek more rural locations at possibly more affordable prices. We are also seeing a healthy transition in the market as older home owners seek to downsize, continually renewing the market with good quality stock, often in desirable locations.

All signs point towards a cooling housing market with demand tailing off from the frantic levels seen during the Covid boom. However, with sensible pricing realigning with current demand, I believe the market will fall back to pre-covid levels and on reflection is that a bad thing?

If you are thinking of moving and would like a conversation about your current home or finding a new one, don't hesitate to get in touch.

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