Anti inflation measure versus mortgage rates.
The Bank of England has announced an increase of 0.25% to its Base Rate this month. This is its 11th consecutive rise, pushing interest rates to 4.25%, the highest they’ve been for 14 years. The move is designed to curtail inflation which has impacted everyone. By coincidence, Nationwide announced a reduction in the interest rates on several of their mortgage products on the same day. Then, on 15 March, Chancellor Jeremy Hunt presented his Spring Budget and said that he expected inflation to fall back to 2.9% by the end of the year. The markets received this as a positive sign and indicated that interest rates had either peaked already or were about to peak. Prestwick Market Update The uncertainty regarding mortgage rates has had little effect on the Prestwick housing market which has been very busy in March. Despite predictions of a housing collapse being on the horizon, nearly all recently listed properties have been sold in a rapid manner with many of them achieving more than the Home Report valuation. As we expected, increased costs across the board have helped to limit the offers over the HR valuations in a lot of cases compared to the giddy heights of last spring. However, the impact has not been as expected and many properties, depending on their competitiveness and location are still seeing substantial premiums over HR. First Time Buyers are beginning to see some encouragement in eyeing entry-level properties where they can get involved and where the premium is not as marked as the prestigious bungalow market. That includes Flats where the market is also strong, especially two bedrooms on the ground floor. In short, the market is lively at present, and while some of the press are determined to make you feel that the crash is just around the corner, the levels of activity at present are healthy and government predictions for the economy at large bode well for a stable housing market. If you would like to read what Rightmove think about the impact on mortgage rates, click here
Mortgage Market Information
While plenty of experts predict a downturn in the property market in the coming year, predictions regarding how badly prices will be affected vary from “ A Slight Market Adjustment”, to “Disaster for Scotland” depending on their take. What should dampen the blow to the prices from the last major “Crash” in 2008 onward is the liquidity of the banks. They could not lend to would-be buyers from 2008-2012, so the lack of available mortgages helped drive down the demand for house purchases. The banks are in a much better position now, although the interest rates have risen recently. I asked our preferred mortgage adviser, Angela, of Fisk Mortgage Services to give us some insight into the current mortgage market. Angela writes,- Unsettled mortgage market – confusing! Due to the quick succession of Bank of England rate increases, it’s no wonder that most people are concerned about either their current mortgage payments or new mortgage payments if they are planning to move home. Even those who didn’t pay too much attention to mortgage interest rates are really starting to sit up & take notice, which in my opinion is no bad thing. The good news, if there is any, is that mortgage interest rates have come down slowly over the last couple of months in particular 5 years fixed rate deals allowing cautious borrowers to lock in the rate for long periods as well as giving the lenders more stability in their lending books. However, it is an ever-changing market which means that lenders are constantly repricing their mortgage deals offered to reflect these changing conditions. There are many factors which are reflected in the mortgage rates so getting into the details of what’s likely to happen is a tricky road to try to travel on, although it doesn’t stop many of our so-called “experts” trying to do exactly that. All that we can ever do when thinking of arranging a new mortgage whether we’re buying a new home or our first home, restructuring our current mortgage where borrowing additional funds or not, is that you consider our circumstances at the time & make our decision based on this. Here are some things to consider: Do you need the peace of mind of knowing how much you will pay for a certain time by fixing the rate? How long would you like your payment fixed for i.e. are you planning any future changes which could affect this decision such as moving home or paying off the mortgage? What if rates were to increase in the future – you need to consider the “what if’s” & prepare for increased payments so that you don’t leave yourself overstretched financially in the future. What happens if things go wrong – how can you protect your payments ensuring you don’t lose your home? As long as we understand that things can & do change in this unpredictable “world of mortgages” and by arming ourselves with as much information that is available to us at the time of making the decision then I don’t believe we should allow this uncertainty to stop us from making the decision to move home or borrow more money to fund building that extension etc otherwise how do we progress…..? I would just like to thank her for her thoughts. In a recent conversation with Angela, my main takeaway was- not to place all your faith in the interest rate alone but to take the whole mortgage package including all the fees into account as well as the projected affordability. I am reminded as well that the interest rate when I bought my first home in the 1990s was 9 per cent. If you would like to know more about mortgages, then contact us and we will pass your questions on to Angela.
Interruption to office phone service
We apologise that our phones were out of order temporarily this afternoon due to a national outage. Sorry for any inconvenience. Tuesday 14 th Feb 2023.
Anti inflation measure will effect mortgage rates.
The Bank of England today raised interest rates to 4% - a 14-year high and the 10th consecutive raise - making rates their highest since 2008 as double-digit inflation continues to bite. The Bank of England today raised the base rate from 3.5% to 4% – a 14-year high and the 10th consecutive raise – making rates their highest since 2008 as double-digit inflation continues to bite. While most borrowers are already fixed into mortgage deals some 2.2 million are thought to be exposed to rate rises and more than a million are forecast to renew fixed-rate deals later this year. Meanwhile Nationwide reported yesterday that house prices in the UK fell again in January, sliding for the fifth month in a row. INFLATION The Bank of England says that while global consumer price inflation remains high it is likely to have peaked in the UK as well as in other advanced economies. “Many central banks have continued to tighten monetary policy, although market pricing indicates reductions in policy rates further ahead. “Given the lags in monetary policy transmission, the increases in Bank Rate since December 2021 are expected to have an increasing impact on the economy in the coming quarters. “The Committee has voted to increase Bank Rate by 0.5 percentage points, to 4%, at this meeting. Headline CPI inflation has begun to edge back and is likely to fall sharply over the rest of the year as a result of past movements in energy and other goods prices. “However, the labour market remains tight, and domestic price and wage pressures have been stronger than expected, suggesting risks of greater persistence in underlying inflation.” “Looking further ahead, the MPC will adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit.” [Estate Agency Today]
January Property News Letter
You may be wondering how the housing market is performing at present. You may have had a valuation of your home in the last year or so and wondering what has changed. Since the end of the summer, the pressures from the wider economy like inflation, fuel and utility prices, and higher interest had combined to curtail what had been an extremely buoyant sellers’ market. The press had widely predicted a major downturn in the property market and the Liz Truss effect served to slow the market further. While the predictions for the next quarter vary, Rightmove reports that asking prices have risen 2 % this month. What we have seen in our local market, there are still relatively few properties available to buy, and that lack of sale stock versus demand means that sales are being agreed upon relatively quickly when priced realistically. Mortgage rates have been at a historically low level for nearly 12 years, and now current rates, while higher, are still a long way from the relative highs of the 1990s. The higher rates will become the new normal and economic pressures impact the ability of buyers to pay the premium prices in excess of Home Report valuations experienced over 2021 and 2022. This is a normal market correction and will restore balance in the economy and allow first-time buyers and investors back into the market who had been priced out by the difficult buying conditions. If you wish to know how this has impacted your home, please give us a call on 01292 277788, we are pleased to offer you a complimentary valuation of your home and offer any advice on your next move.
The Housing Market was in need of correction.
Why predictions of the housing market downturn do not herald the harbinger of doom. High prices, and in particular, properties achieving well over their (Home Report) value, have been pricing out First Time Buyers and local people from buying in their local market. The high prices we were achieving in the summer of 2022 were unsustainable, in some cases, shockingly extreme, and rising far quicker than earnings. The housing markets rise and fall over time and a downward cycle is merely a correction to the previous high. People who remember the crash of 2008 and fear a repeat should be aware that the banks are liquid now and eager to lend mortgages compared to their inability to do so back then. Higher interest rates are a fright to many, but it should be noted that they have been held at a historical low for over ten years. Our office in Prestwick has been complaining all summer that we have rarely sold a home to a local buyer as interlopers from all over the country and beyond have been cash rich and have been moving into the area in their droves to the detriment of locals wishing to move or get on the property ladder. For sellers, there may be a wistful sigh when they see what their neighbours' homes achieved in 2021 and 2022 but if you are selling and buying in the same market, then there are benefits. Please see our previous post and video for more details. (Should I stay or should I go?) If you are looking for some tips for selling your home, then click here to access the selling information and FAQs areas of our website. Lower house prices should mean that first-time buyers will be able to return to the buyer’s market and also the likelihood that the survey value on the Home Report will become the maximum that most people will offer means you won’t require an inordinate amount of excess cash to buy the house in the first place. So the fact that house prices may go down in 2023, remember that they rose by an extraordinary amount in the last two years and that any reduction is merely a correction.
Buying and selling in the same market
So, you may be asking. "Should I go, or should I stay?" Is now a good time to put my house on the market? From an Estate Agency point of view, if you are selling to buy, you are usually working in the same market. The video below will explain in detail what that means, in cash terms. Also, if you are waiting for the spring when many believe there may be more buyers about, then there will, most likely be other properties coming to the market which will be competition for yours. https://tinyurl.com/yc87edw4 And, thirdly, no one knows what the future will bring, the predictions vary from Armageddon to England winning the World Cup. (Any sport, doesn't matter). There is a good deal of information and advice on our website in the dropdown tabs in the Selling and FAQ areas. Click here for the latter.
Local Property News
You may be wondering how the Housing market is at present. The average asking price of property coming to the market in the UK dropped by 1.1% this month, which despite the weight of financial uncertainty is in line with the average 1.1% drop recorded in November during the pre-pandemic years of 2015-2019.* The proportion of properties seeing a reduction is only slightly up on pre-pandemic levels, though a slowdown in activity from early 2022 and last year’s frenetic market has led more sellers to be willing to reduce their asking price to agree a quicker sale. For some months, we have been forecasting that the heady days of offering 15-20% more than the Home Report Valuations would come to an end at some point and so it seems to be here or nearly here now. (Although competition for certain individual properties will still occur.) Surveyors are saying that although the Home Report values are not yet under pressure to be reduced, however, when considering comparable sales where previous buyers paid significantly over the mortgage value in the HR, they must be sensible in their approach. THE GOOD NEWS FOR YOU. While the increases in all living costs and rising mortgage rates will harm House Sale Prices, the shortage of properties on the market and the demand to buy in our area from buyers all around the country may help to keep prices healthy. Those who foresee a significant property downturn should remember that one of the main causes of the last major crash in 2008 was that the banks had their available funds wiped out and were unable to offer mortgages to any significant level. This is not the case at present, and mostly the banks are liquid and eager to lend. Although borrowing is more expensive than of late, interest rates have been historically low for the last ten years and many will remember when 8-10% was normal. In short, while there are plenty of predictions that the Housing Market will be in recession over the next few months, it is starting from a very high point, and nobody can know just how much it will fall. Remember a 15% reduction in 2023 over 2022 will bring us back to 2021 prices or thereabout. If you would like to know more, please call 01292 477788 or scan the QR code below to get an idea of the market for your home. [ *Figures from Righmove.co.uk] Regards Kevin Hand Associate