Get ready for turmoil on the property market because hot on the heels of the mortgage crisis comes the property sales crisis.
May was an unusually damp month for house sales with data for the month’s house price transactions from HMRC showing that the number of sales were 25% lower than a year before.
Slow sales
In fact, with the exception of the lockdown year of 2020 it has been the slowest May in a decade for house sales.
Sarah Coles, head of personal finance at Hargreaves Lansdown, warned that the effect on house prices could be significant.
Coles said: “A toxic cocktail of ruinous property prices and devastating mortgage rates could kill off any lingering optimism over house prices. The market held it together in June, but this was before mortgage rate hikes took their toll.”
According to Moneyfacts the average 2-year fix was 5.38% and the average five-year deal was 5.05%, at the end of May.
Relief
By the end of June, things look very different. With the average two-year fix at 6.37% and the average five-year deal at 5.94%, it puts an enormous dent in affordability, and may well drive a huge number of buyers out of the market.
The situation for people looking to remortgage looks a bleak one as they can expect soaring rises in monthly repayments.
Bank bosses met with Chancellor Jeremy Hunt and did agree on some relief measures for struggling mortgage borrowers last week, which he said should offer some comfort to those anxious about high interest rates.
They agreed that homeowners could make temporary changes to their mortgages for six months, such as switching to an interest only mortgage or extending their repayment terms.
Martin Lewis, founder of MoneySavingExpert.com said:
“The unprecedented steep rise in mortgage rates is causing a nightmare for many with variable mortgages and those coming off fixes. Therefore, the most important thing we can focus on right now is appropriate, flexible forbearance measures. While the Bank of England’s aim is intended to squeeze people’s disposable incomes, no one wants people’s lives to be ruined by arrears and repossessions – and that is the urgent protection we need to focus on.”
But this won’t be enough for some who will have to cut their losses and sell. This could lead to a steady stream of unwilling sellers dragging the market down.
Coles added: “There is still hope. There’s the chance that the market has overreacted. The Bank of England thinks we won’t need the kinds of rises that are currently being priced in, so if we get more signs of inflation starting to ease, we may well see mortgage rates fall.”
In tandem with mortgage increases rents are also climbing, though whether this will provide some safeguard from house price falls will only become clear in time.
