‘Unstable’ – property forecasts reel from post-Budget whiplash


worried couple

Recession. Inflation. Interest rates. Stamp duty cut. Rarely have so many forces been in competition to see which among them could most disrupt the property market, and all who work in it. In a coin toss of how this will all end, right now boom and bust get even odds. But that could all change in another flip.

Analysis of Google search data by lender Loan Corp reveals searches for ‘mortgage help’ had skyrocketed 201% in the UK as of 26th of September, as an increasing number of mortgage lenders halted deals for new customers amid market turmoil.

Santander, Yorkshire Building Society, Virgin Money and Skipton have all suspended mortgage deals, after the pound fell by 5% against the dollar in the wake of Chancellor Kwasi Kwarteng’s tax cutting Budget, fuelling forecasts of a Base Rate as high as 6%. Nationwide said it would lift rates on a range of fixed mortgages.

Add to the mix at least two warnings between August and September from the Bank of England that the UK was either in or about to enter recession.

Yet the Budget also offered the property market a shot in the arm – a doubling of the stamp duty tax-free allowance to £250,000. The average first-time buyer in 91% of local authorities across England will now pay no stamp duty on the purchase of their first property, according to the research by Revolution Brokers.

Market analysis by bridging lender Octane Capital forecast the average house price across England could spike by a further £34,000 over the next 12 months, with a rejuvenated level of buyer demand spurred by the cuts to stamp duty.

Yet Jonathan Samuels, CEO of Octane Capital, called the property market landscape “increasingly unstable”, with rising mortgage rates and the spiralling cost of living adding to the economic angst of the nation.

He added, “rather than steady the ship, the Government has once again chosen to rock the boat with ill-advised initiatives designed to fuel demand and push house prices ever higher”.

Samuels admitted that while the stamp duty move will help bolster market activity in the short term, “it will also push the dream of homeownership further out of reach for many, who simply can’t muster such a sizeable mortgage deposit”.

He warned of a market on course to “burst at the seams”.

On 3 September, a lifetime ago in terms of dramatic events, before the Queen died, before Liz Truss was made Prime Minister of Britain, a headline in the Times newspaper ran ‘‘House price slump’ hits developers’.

HSBC had forecast a housing downturn would next year translate into a 7.5% drop in prices outside central London and a 5% decrease in new-build prices. The news briefly knocked close to £1bn off the stock market value of Britain’s biggest housebuilders.

Matthew Anderson, head of sales at Arbuthnot Specialist Finance, said at the time any such drop would need to be considered alongside the recent increases in house prices. “For context, UK house prices increased by 7.8% for the 12 months to June 2022, so perhaps the property market is returning to pre-Covid normality,” he said.

Demand “will suffer” because of the cost of living crisis, Anderson acknowledged. A bigger problem, he said, was he was hearing from developers that land prices have yet to adjust to reflect the increase in build costs caused by higher inflation.

Inflation was also what had preoccupied the HSBC analysts’ and caused their gloomy forecast, or at least the Bank of England’s response to it. They predicted a downturn as a result of the sharp rise in mortgage rates this year as the Bank has sought to tackle inflation by raising the cost of borrowing with higher interest rates.

With sterling’s dramatic post-Budget tumble, this risk has only increased, along with headlines around interest rates more than doubling from their current level of 2.25%, already the product of seven increases in the first nine months of the year.

Karen Noye, mortgage expert at wealth manager Quilter, said: “Lenders will now be much more cautious about lending to people as 6% interest rates may be unaffordable for many while borrowers who are coming to the end of their deals are flooding telephone lines trying to get a fixed rate deal in light of a difficult period on the horizon.”

Lenders’ systems have been crashing with long virtual queues for borrowers and advisers trying to get them or their clients a deal at current rates, she added.

Noye said: “In fact, we are seeing more and more people look to suffer early repayment charges just to get the certainty of mortgage costs. Rates that were available one hour are gone the next which is making it a tricky time for buyers.”

Rates of 6% could prove disastrous for the property market as people simply won’t be able to afford their mortgage payments if they have overstretched themselves, Noye added. This could cause a wave of properties to come to market just when demand is drying up. House prices will naturally come down if this happens.

Consensus is gathering that a downturn is inevitable. Yet with a still severe lack of stock in the market and an ever increasing population of renters wanting to buy, house prices may not see a severe crash.

CG & Co specialises in property receivership, dealing with default customers in order to return funds to lenders as swiftly as possible should that be necessary.

Daniel Richardson, a partner and property receiver at the firm, said at this point, “it’s become more essential than ever that we all keep the closest eye on how long property sales are taking – and also ensure that properties are priced correctly in the first place”.

Developers are telling Richardson that new build prices are decreasing at the same time as their build costs are increasing.

“That clearly has the potential to squeeze margins for developers even more going forward,” he said.

The desire to complete deals with the right borrowers remains high among lenders, he added, but at the same time “they’re increasingly reticent about affording additional time beyond the expiry of the loan term due to the increasing debt figure as well as reducing house prices”.

Lenders don’t want to find themselves in a position where they have to enforce terms to protect their equity position, he said.

But, Richardson added, there’s an increasing realisation among lenders that this can “frequently” be in the best interests of the borrower – as well as their own – “as it quickly and effectively resolves the situation and enables all parties to move forward”.

A hard but necessary rationality for a property market once again thrown into turmoil.