After a shock to the system, what’s next for the housing market?

As the housing market gradually begins to recover from the shock of ex-chancellor Kwasi Kwarteng’s ‘mini-budget’, people are bracing themselves for what might come next.

The fall-out from that fiscal event put the wind up lenders and left buyers struggling to find an affordable mortgage deal. Thousands of loan products disappeared as if by magic in a matter of days and interest rates climbed.

When reports suggested a slight drop in house prices for October of 0.9% month-on-month, the tongues of the media’s Negative Nellies began to wag.

Nevertheless, those who can afford it are still shopping around for the best deals, while those who feel they may struggle with higher rates, might well decide to hold off on committing in case prices ‘cool’ further.

But away from the property pages, what is really going on?  One thing is certain, demand for homes continues to outstrip supply if the price is right and the finance is in place.  And it is the unanimous view that there is still a need for hundreds of thousands affordable, quality homes.

But there’s a problem here, too. Housebuilders are reporting record increases in the cost of materials which have risen 24% this year.

And even if they could afford the higher prices for materials, the housebuilders are facing a shortage of skilled workers. According to market analysts, Unlatch, over the past five years Britain’s construction industry workforce has shrunk by 3% - from 2.27 million in 2017 to 2.21m in 2022.

Dig deep into the housing market

And in the last year alone, the number of self-employed people in  the industry has fallen by -3.9%, from 852,000 to 693,000.  

So is it all doom and gloom?

Not necessarily, according to Richard Campo, founder of mortgage brokers, Rose Capital Partners, who believes that any fall in house prices could be more accurately seen as a correction rather than anything more significant – particularly in London and the South East.

And, if we dig deep into the housing market over the last few years, have we really enjoyed the housing bubble that is so regularly talked about?

New figures show that prices in London rose by just 3.9% between 2021 and May this year, following falls during the pandemic. But in Aberdeen, prices have fallen by 2% over the last 12 months. And while the South has seen considerable price increases year on year, the North East has had rises of less than 1%.

Even so, while over 50% of people own their homes outright and are therefore unaffected by hikes in mortgages, some recent buyers could find themselves over-stretched if interest rates continue to rise and the cost-of-living crisis deepens.

And as the government tries desperately to steady the ship, there are already signs that the hysteria that has been heaped on the housing market is gradually subsiding.

We leave the last words to Mr Campo.

“We’re likely to see interest rates continue to rise well into 2023, although they will probably top out at around 4.5%, rather than close to 6%, as feared a few weeks ago. As we adjust to living in a higher interest rate environment, lenders will potentially lend smaller loans in 2023, so even if house prices fall, loans will be smaller plus they’ll be charged at a higher interest rate.  Meaning that first-time buyers will be worse off the longer they leave it.

“My suggestion would be that, if a first-time buyer has a property in mind and the funds in place, the sooner they make their move the better. If they’ve found their property but are still searching for the right mortgage, they should speak to an experienced mortgage broker who will be able to search the whole market.”

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