Six developments at work in the UK housing market according to Ian Stewart, Deloitte’s Chief Economist in the UK
To subscribe and/or view previous editions of his Deloitte Monday Briefing just google, ‘Deloitte Monday Briefing’, writes Clive Scrivener, Founder Partner at the Wimbledon-based Chartered Surveyors Scrivener Tibbatts Ltd, London Leasehold Valuation specialists.
“First, house prices have held up in the face of rising interest rates. The Bank of England raised rates from 0.1% in late 2021 to a peak of 5.25% in 2023, the highest since 2008. But rather than falling, as was widely expected, house prices have risen by 10% since late 2021. (This has not been enough to keep up with inflation, which rose 21% over this period, but it’s a stronger performance than was seen in the wake of previous aggressive interest rate raising cycles.) Why have house prices held up? Most households have fixed-rate mortgages which, unlike the variable-rate deals that were the norm until the 2000s, delay and spread the impact of rising interest rates on mortgage payments. More stringent regulation of mortgage lending that was put in place after the financial crisis means that borrowers are better placed to cope with higher mortgage rates. Consumers have also drawn down on savings built up during the pandemic, enabling them to offset some of the cost of higher mortgage rates. Most importantly, unemployment has remained low and wage growth has proved stronger than expected.
“Second, house prices in London and the south have underperformed the rest of the UK in the last couple of years. House prices in the South East, South West and London have fallen by 1%-2% since early 2023 while prices in Northern Ireland, Scotland, Yorkshire and the Humber, the North West and North East have risen by 6%-14%. This reverses the trend of outperformance by the south that had been in place since 2010. Higher interest rates have hit southern households which tend to have larger mortgages relative to their incomes. This has squeezed housing activity and prices most in areas with the highest house prices.
“Third, the pandemic’s ‘race for space’ that led buyers to opt for larger properties seems to be unwinding. The FT reports that nearly 20% of the homes on the market so far this year were purchased in 2021 and 2022, well above the 12% share that homes owned for three and or four years normally account for. Lucian Cook, Savills’ director of residential research, says that return to the office mandates and the realities of long commutes mean that moving further from work has become a more daunting prospect.
“Fourth, more people own their homes outright, but fewer have mortgages. Most of the large cohort of households that bought property in the 1980s and 1990s have paid off their mortgages, lifting the proportion of the adult population who are outright homeowners from 25% in 2000 to almost a third today. Meanwhile the inflow of people into home ownership has slowed. High house prices and tougher criteria for mortgage lending mean that the proportion of adults with a mortgage fell from 36% in 2000 to 24% in 2023. As a result more people are renting, and over half of those aged 19-29 live with their parents.
“Fifth, mortgages are getting longer. 25-year mortgages were once the norm. Today half of new borrowers take on a mortgage with a term of 30 years or more, up from just 12% in 2005. New mortgages with terms of 40 years or more, which were almost unknown at the turn of the century, now account for just under 10% of new mortgage lending.
“Finally, mortgage rates are at their lowest level for nearly three years. The average two-year mortgage rate fell below 5.0% for the first time since September 2022 last week, having been close to 7.0% in 2023. The Bank of England has cut interest rates from 5.25% to 4.0% in the last year and mortgage rates have drifted lower in response. This is good news for new buyers. However, just as fixed-rate mortgages delay the transmission of rising interest rates to mortgage payments, so they slow the pass through of interest rate cuts to existing mortgage holders. The Bank estimates that due to lags in mortgage refinancing, reflecting the length of fixed-rate deals, many borrowers will see their mortgage rates rise when they refinance. Thus, despite interest rate cuts, the average mortgage rate paid by UK households is set to rise, not fall, over the next 12 months.”
If you would like to discuss something related to a property valuation please contact Clive Scrivener direct via email at Clive@scrivenertibbatts.co.uk or call 020 8971 2983.
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(Picture credit: Pexels.com_ Andras Stefuca)
