Is a glass half empty or half full? It depends on how you look at it. Similarly, the UK property market is a picture of gloom and impossibly soaring mortgage rates to some but an amazing buying opportunity for others.
Consider the dismal backdrop. Inflation isn’t so much sticky as a hazardous quicksand pulling the value of our money down into sinking matter. The situation is desperate so the Bank of England hikes up rates again and again and again. Result: mortgage repayments go through the roof, making it impossible for some borrowers to bear, who are then forced to sell up.
The figures from UK Finance are stark. They show that 800,000 fixed mortgages will expire before the end of this year and that those who renew their mortgages will spend an average of £2,900 a year in additional interest rate payments.
Rental Pain
Landlords are also being hit in the wallet according to the estate agents Savills, with net profits for buy-to-let investors down to less than 4 per cent in the first quarter of the year, the lowest figures since 2007.
Property tax experts Cornerstone Group International warned that as many look to rent rather than buy, there are fears of an exodus of landlords from the market restricting the supply of rental property.
David Hannah, chairman of Cornerstone Group International, said:
“Due to the decision from the Bank of England to raise interest rates to 5%, homeowners coming off fixed-rate deals and moving straight into a six per cent mortgage are going to be unable to afford them.”
He added: “That’s going to lead to a load of repossessions and forced sales which is not good news. Fundamentally it’s going to shatter confidence in the market.”
Discounts
But a crisis for some can be an opportunity for others, with the latest figures from Zoopla showing a spike in house price discounts.
Some 42% of house sellers are accepting offers over 5 per cent below the asking price – the highest number in five years. Meanwhile, 15% are accepting offers 10% lower than asking. The average discount has hit 3.8%.
House prices are expected to fall by 5 per cent by the end of the year as the number of buyers drops and more properties come onto the market.
Sarah Coles, head of personal finance at Hargreaves Lansdown, warned that this could be just the start if rates stay high, with properties piled high and sold cheaply in the second half of the year as unaffordable mortgages see properties being tossed into the bargain bucket.
Coles said: “A huge number of today’s buyers will have locked in a mortgage before rates started to rise through the roof. As a result, sales held up at 8% above the five-year average. However, demand is already down 14% in a year, and as the impact of mortgage rate hikes feeds through into sales, we can expect this to intensify. A rise from 4% to 6% cuts buying power by 20%, which is going to take a toll.
She added: “It’s also worth keeping a close eye on the number of properties being put up for sale. Supply is starting to grow faster, and 18% more homes hit the market in the previous four weeks than the five-year average. As borrowers face the horror of remortgaging at a much higher rate, they’re weighing up their options. The government is hoping to stem a flood of forced sales by making it easier for people to make short-term mortgage changes to bring monthly costs down. It remains to be seen whether this is enough, or whether higher rates for longer are enough to persuade people they need to downsize. More forced sales could make Zoopla’s prediction of a 5% price fall start to look fairly optimistic.”
Misery for some will mean optimism for others as the raddled property market reels from the blows of inflation and rate hikes. How long it will stay this way cannot be forecast with any accuracy but it’s sure to be too long for those suffering, but not long enough for those benefiting from it.
