I’ve been keeping a close eye on what’s happening with the housing market and shared my thoughts to date in a couple of recent blogs ‘An Interesting time for Mortgage Rates’ and ‘Mortgage Rate Merry-go-round’.Following Thursday’s interest rate increase here’s my latest market musings.
The Bank of England Monetary Policy Committee (MPC) met on 3rd August 2023 and voted by 9 votes to 3 to raise the base rate by 0.25%, upping the current interest rate to 5.25%, its highest rate since 2008.
This was the fourteenth consecutive meeting which led to a rate rise and is a decision which is sure to be terrible news for those currently approaching a re-mortgage or stuck on a lender’s standard variable rate, with most such rates now approaching or into the 8% region.
Aside from the pain being suffered by tens of thousands across the nation, it also places further strain on the UK Property market. This provides us with an opportunity to review the state of the same, following several consecutive months of rate rises. However, before we consider some nationwide commentary, let us first consider the effects of the last twelve months and my view on this.
Only twelve months ago, Boris Johnson was just about leaving 10 Downing Street and we were in the midst of a new Prime Minister run-off. We eventually ended up with Liz Truss as our Prime Minister, who, right away, rocked the financial markets with her economic plans in a mini budget. It’s worth noting that on 4th August 2022, the Bank of England Base rate was 1.25% (rising to 1.75% on 9th August 2022) and mortgage rates were still circa 2-3% for most applicants.
By the end of 2022 the base rate was at 3.5% and it’s fair to say that the property market was struggling.
From September to December 2022, the market was shell shocked. Three years of large price increases looked over, rates were spiralling, and I was genuinely concerned we were heading for a hard property recession with a loss of jobs and high unemployment to boot.
Thankfully, to my surprise, the UK Property market entered 2023 and has somewhat recovered from the final quarter of 2023. Confidence grew, we had a new Prime Minster and, in comparison to late 2022, activity began to flow back to the market.
What is surprising is that rates have continued to rise, yet consumer confidence, and the market generally, has remained fairly solid in the last seven months, in spite of all of the financial crisis, high inflation and high rates.
Why is this, we wonder? It’s hard to say, in all honesty. Perhaps this is a realisation of the older generation, who were used to 5% + rates, that this is the norm, and we were lucky to have had years of mega low rates. Perhaps it’s the first-time buyer spotting an opportunity to buy into the market at a discount, in comparison to years passed, or perhaps that they have known nothing except these rates, this being their first purchase.
A wider look at the market, from some external sources, shows the number of transactions in June 2023 dropped 9% when compared to June 2022. Yet June 2023 was 28% higher than May 2023. Somewhat baffling statistics.
If we look at house price data for May 2023 (HM Land Registry) this shows Scotland recorded a house price increase of 3%, yet London decreased by 1.2%, with varying degrees of loss and gains in other regions.
What does this tell us about the state of the market? Well, nothing – there is no flow. It is impossible to read the same – it seems to vary depending on location, month and even house type.
So, what next? What of the future of the market? Well, your guess is as good as mine. The large price decreases, predicted by many large surveyors and media houses at the start of 2023, have yet to materialise. The UK wide recession, which was expected, has yet to come to fruition, and inflation has yet to drop as we would’ve liked.
Are these media outlets all wrong, or are we riding a wave which is about to come crashing down? My view is that it’s too early to tell. What is for sure is that these are interesting times. The base rate is expected to have two more 0.25% rises this year, before starting to fall back in Quarter 2 of 2024.
It would be nice to say we are entering the worst of it right now, and will come through the other end shortly, but then again, no predictions thus far have been perfect, and there are probably more tough times to come for all concerned.
If you are affected by the above, get in touch and we can guide you through to help make the buying and selling process as simple as possible. Furthermore, if you need help in obtaining a new mortgage deal or want to be put in touch with a reputable agent or surveyor then we do know a number of the same whom we would be happy to pass you onto.
By Jonathan Wall, Partner and Head of Residential Property
Dated Monday 7th August 2023
