May Property Update
If you’ve been following the news, you would have seen that the potential of a global recession is looming. There is already a lot of talk about what will happen to the UK real estate market, which has been setting price growth records and performing strongly for the last year. Mortgage rates are increasing as well as the cost of living, will this have an inevitable effect on the market?
Cost of living and mortgage rates are on the rise
According to a report by Halifax (the UK’s biggest mortgage lender) - “with interest rates on the rise and inflation further squeezing household budgets, it remains likely that the rate of house price growth will slow by the end of this year,”. In the short term, they are expecting house prices to remain strong due to the amount of new buyer enquiries and sales and mortgage approvals remaining higher than pre-corona levels.
The Times have put the potential increase in rates in context – should interest rates rise to 3%, it is nowhere near as bad as previous interest rates hikes. In 1989 it was 15% and in 2007 it was 5.5%, so the potential current increase will be low by historical standards. Another positive note pointed out by the article is that “the majority of homeowners will be cushioned from a rate rise because they are on long-term fixed mortgage rates”.
The Times was also positive regarding the increased of cost of living, as un-employment is low, and companies are still hiring. The downside, however, is that people won’t spending on moving homes or improving their current home.
The consensus from all the contributors of the article is that a house price crash is not likely, but rather a “dip or a flatlining”.
The challenge of the lack of stock
There are certain markets in the prime London market that have been booming – larger, family houses in areas such as St. John’s Wood, Notting Hill, and Hampstead. Finding family houses here is a challenge – they have been selling very well. It’s a slower market for apartments without outside space, especially as the market didn’t see the boom in overseas buyers that it was expecting.
The main challenge at the moment is the lack of stock in both segments – houses are selling very quickly (many off-market) and apartment owners are holding off putting their flat on the market due to the lack of demand. In fact, the lack of supply is a key factor when looking for a sign of the market slowing down according to the head of residential research at Knight Frank. He stated that the big test will be the autumn selling season after the school holidays.
The rental market
The price of renting a home in London has increased by a record amount, rising by 12.3% in the year to April. According to Hamptons, a third of the homes in London rented out in the current year have been to tenants moving from outside the city. The agency also stated that “fewer tenants are moving to the capital specifically for work, in fact a growing number of tenants choosing to live in London are working fully remotely and could live nearly anywhere in the country. The footloose nature of many jobs today means that it will be culture and lifestyle rather than employment that becomes the capital’s biggest draw”.
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