Are House Prices Set to Fall This Autumn?

The stamp duty tax holiday is over, furlough finished at the end of September, unemployment is due to rise and inflation is rife… Is this the end of the post lockdown property boom?

Surely, we are heading for house price correction?

Forecasting what will happen in the property market this Autumn may not be as simple as it first appears.

It’s true the property market is starting to settle down after an all-time number of property deals were completed in June.

More people will have moved home in 2021 than in any year since 2007, with an estimated 1.5 million homebuyers nationally having bought a property.

Roll the clock back to last Christmas, and the Government’s Office for Budget Responsibility projected that national house prices would drop between 6% and 8%.

Let us not forget there were so many ambiguities at the start of 2021. We were about to start a 5-month lockdown, hospitals were bursting at the seams with patients, the vaccines hadn’t started, 4 in 10 employers had furloughed their staff and we had just had Brexit… Things didn’t look good.

Yet, nothing could be further from the truth 10 months later – the property market has been on fire. But after a heated summer in the property market, things certainly can’t carry on as they have been since the end of lockdown.

So, where are we with the property market as it stands? Taking reference from historical data on the website The Advisory, over 70% of properties on the market today are sold subject to contract.

As we enter the last 3 months of the year, there are not so many uncertainties as there were at the start of 2021. On the good news front, 49 million Brits have had at least one jab (45m two jabs) and the UK will be the world’s fastest-growing advanced economy this year according to the IMF.

Conversely, the furlough scheme ended at the end of September and with energy prices going through the roof, a real shortage of homes for sale (as we have discussed a number of times in recent blogs) and rising inflation on the back of a shortage of raw materials and trained staff, forecasting this and what will happen to house prices might not be as easy as it seems.

Post stamp duty holiday, it is now recognised that the majority of the demand for people moving home is focused on profound unhappiness and frustration with the homes we live in, revealed during the first lockdown in 2020.

Buyers (and tenants – so take note buy-to-let landlords) want space. In fact, three types of space… And they will pay handsomely for them!

• Office space (be that bedroom or study)
• Outside space (gardens or proximity to green areas)
• Broadband with ‘outer-space’ download speeds

And whilst there is a shortage of properties coming on to the market, demand and supply economics mean…

house prices should remain relatively stable going into 2022.

The number of properties coming onto the market is slowly improving, yet not enough to diminish house values.

Also, don’t forget first-time buyers still have stamp duty relief all to themselves again and mortgages are cheap. At the beginning of the 2020 lockdown (spring 2020), mortgage providers removed their higher risk 5% deposit mortgages for fear of a housing market crash. Currently, the vast majority of these low 5% deposit mortgages are back, together with the Governments own 5% deposit mortgages.

Yet many homeowners are concerned about inflation and its effect on their mortgage payments.

Inflation is important because if inflation gets too high, the Bank of England will need to raise interest rates to reduce inflation. Because mortgages payments are based on the bank of England interest rate, higher mortgage payments will affect what people can afford. Normally the higher the mortgage rate, the less likely house prices are to increase (and in fact if interest rates are too high, house prices will fall).

With the Bank of England base rate at a 300-year historic low of 0.1%, we are still surprised that nearly 3 in 10 homeowners with mortgages are not on a fixed-rate mortgage. There has never been a better time to get a fixed-rate mortgage, as there are deals out there with interest rates as low as 1%. This means even if interest rates do go up in the short term, you will be protected from higher mortgage costs. We work closely with expert, trust mortgage advisors and can help you with this area if required!

Inflation did rise quite quickly and steeply in 2008/9 but came back down within a year.

This was because of a shortage of staff and raw materials during the Credit Crunch of 2008/9, the very same issues we’re experiencing at the moment in Q4 2021. The type of inflation (yes, there are types of inflation!) in 2008/9 was called ‘push inflation’. Whilst inflation is not great, ‘push inflation’ could be described as the better type of inflation (as long as is it doesn’t go on for too long).

The economic crippling hyperinflation seen in the 1970s was ‘pull inflation’. The circumstances that create ‘pull inflation’ are not being experienced at the moment in the UK. This is good news because ‘pull inflation’ is bad inflation, which in turn would create massive problems for the UK economy as a whole.

Therefore, whilst inflation will probably rise to 4-5% by Christmas, I don’t believe the Bank of England will raise interest rates substantially as the message we are hearing from them is they see this as a short-term blip.

Opportunities for buy-to-let landlords?

Ultra-low mortgage rates and a booming rental market are encouraging more buy-to-let landlords to expand their rental portfolios, yet their strategy is changing. Yields are increasing as there is a shortage of rental properties, driving up rents. Also, there are landlords looking to exit the rental market, often because they want to liquidate their portfolios for retirement. These portfolios don’t make it onto Rightmove and get sold ‘off market’.

Therefore, if you are a serious buy-to-let landlord and you’re looking to expand your own portfolio, it’s really important to put yourselves on the mailing list of estate agents and also build up great one-to-one relationships with the same agents to ensure that you’re at the front of the queue for these off-market rental portfolios and not at the back.

To conclude, nobody knows the answer to what will happen to the property market as we go into 2022. There are many factors that could affect the market in a positive and negative way, yet buying property is always a long-term investment (be it for yourself or to rent), so if you need any advice or opinion on what you should do, contact the NEXA team today.