What the recent changes to interest rates means for the property market
There have been unprecedented moves in the monetary market in recent weeks with a lot of speculation about how this will impact the housing market.
The post-pandemic era has seen an incredibly buoyant property market with a distinct lack of housing stock, coupled with high selling prices and quick selling times. In August, mortgage approvals were the highest they’d been throughout 2022 highlighting buyer confidence in the market. With the mini-budget introduced in September and the rising cost of living particularly with utility bill increases in October, there will no doubt be a different economic landscape ahead, which will of course impact the housing market in the coming months.
A more balanced and reflective view
The events last week were fast moving and will likely cause some to pause for thought. However, the feedback from ESPC solicitor estate agent member firms is much more balanced and more reflective of the real market activity and confirms that there is still strong interest from buyers and sellers.
Andrew Diamond, Partner and Head of Residential Property at ESPC member firm Lindsays gives us his thoughts:
“There has been much crystal ball gazing in the media in recent days, with commentators making predictions about what is likely to happen in the Housing Market in coming months. The first thing which jumps out at me is that the various predictions are all guesswork – some of the guesses more educated than others. The reality is that while rising interest rates are a factor which affect the market they are not a factor which works in isolation, and at this point in time nobody actually knows to what extent they’ll affect the market or what the timescales around that will be.
There are a number of factors which haven’t materially changed of late: purchaser appetite to buy remains generally strong; Employment levels are high, and scarcity in the labour market means that amongst buyers there isn’t the level of concern about job security that there might have been in other times; The availability of mortgage funds remains generally good, notwithstanding the short term uncertainty about interest rates and the resulting re-pricing of those funds; and finally, many buyers are also sellers, and vice versa, meaning that whenever this group of people are trading in they are likely to make some gains on the swings and some losses on the roundabouts – it’s just not always exactly the same swings and exactly the same roundabouts.”
A robust housing market
The property market in Scotland has traditionally remained robust and we don’t anticipate any immediate change in this. We would anticipate that the market softens and that property sellers need to set realistic expectations on what their property will achieve, as buyer demand for quality local housing stock remains steady.
Short-term squeeze on mortgage product availability
The challenge for buyers comes from two places. There are less mortgage products currently available to choose from at this current time, particularly for those needing a higher loan to value ratio. According to moneyfacts.co.uk there were 3,800 mortgage products available on 26 September 2022 compared to 2,262 one week later. We do now expect to see an increase in mortgage products once again in the coming weeks. The increased interest rates that have come into effect already and have been predicted will also have an impact on what people can afford to pay monthly. The Bank of England has signalled to the markets it does not expect to review interest rates until 3 November 2022.
Interest rate forecasts
Interest rates rose to 2.25% on 22 September 2022, the highest they’ve been since 2008. There was then much speculation that rates will continue to rise substantially, potentially as high as 6% in 2023. The UK Government’s U-turn to scrap the 45p top rate of tax appears to have steadied some of the market concerns, with predictions currently sitting at between 5.5% and 5.75%.
Expert advice is crucial
Combine this with utility cost increases as well as the potential for food bills to increase, and it is important that potential property buyers review their initial budgets. Expert advice from your ESPC solicitor estate agent on property types and the long-term value of home ownership coupled with monthly affordability is key.
We believe in a sensible approach and understanding the long-term value of home ownership as the dynamics of the housing market change once again.
Latest market data
At ESPC we are continuing to see buyer interest, with users coming to the site and viewing properties remaining strong when comparing with previous week. And weekly users are up 33% on the same week in 2019 (which we use for comparison to a more normal, pre-pandemic time). This shows that we still seeing strong interest in the local market.
It is too early to see any direct signs of change in the property market. Last week we saw a week-on-week increase on new properties for sale, with a similar volume of new insertions that were recorded in 2019, suggesting a normal listing behaviour.
If you are a first-time buyer
As a first-time buyer it is essential that you work with your solicitor to make sure you have all the latest, real-time data on what is happening in the market. They will help you to identify the best property types and locations for your budget.
We have asked the Scottish Government for clarity on Land and Buildings Transaction Tax (LBTT). The UK Government announced changes to Stamp Duty last month, but property taxation is a devolved issue, and the Scottish Government is yet to make an announcement. We hope that they follow suit so that Scottish buyers can have some of the same benefits as those buying in England and Wales.
Recommendations for home sellers
If your property is currently on the market, we are still seeing interest from buyers and healthy demand. Speak with your solicitor who will keep you up to date with the latest market data and more importantly, actual selling prices in your area. It is important that you get the marketing price right and understand that it is important to set realistic expectations on what you could achieve on your sale.
Thinking about remortgaging?
If you are on a fixed rate you need to understand when your fixed rate term is due to expire. If it is in the next few months, it would be a good idea to speak with your mortgage adviser, like the team here at ESPC Mortgages, and identify the best new deal for you.
You need to take account of any early repayment charges that may apply if you decide to change to a new deal before the end of your fixed rate period and this is often a judgement call as to what suits you best.
In summary
Whilst the near-term economic outlook is uncertain, evidence suggests that buying a home remains a sound medium-term investment and your solicitor estate agent is best placed to keep you up-to-date on the latest developments.
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The initial consultation with an ESPC Mortgages adviser is free and without obligation. Thereafter, ESPC Mortgages charges for mortgage advice are usually £395 (£345 for first-time buyers). YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOANS SECURED AGAINST IT.
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ESPC (UK) Ltd is an Appointed Representative of Lyncombe Consultants Ltd which is authorised and regulated by the Financial Conduct Authority.