A The UK recession seems almost inevitable – but some estate agents have reported a buying frenzy and a flood of properties in the housing market, as people try to move out before interest rates rise further to control high inflation.
“Some buyers have made the decision to enter now ahead of the next round of interest rate hikes, and that has added a degree of urgency to the market in recent months,” said Lucian Cook, head of residential research at Savills real estate agent.
Knight Frank and Hunters are among real estate agents reporting that more properties are coming to market. Gareth Williams, Hunters managing director, said: “The last two weeks have seen a significant increase and last week was Hunters’ best registration week of the year.”
“We are at a crossroads,” says Andrew Groocock, regional partner at Knight Frank. “Nothing has fallen yet. August was our busiest August for new listings in 10 years in London, and our busiest month since September 2020.”
But the economic situation looks threatening. Even with the £2,500 price cap freeze promised by Liz Truss this autumn, energy bills will be double what they were last year, inflation remains just under 10%, real wages are falling and interest rates are expected to reach 3% by the end of the year. The Bank of England is expected to raise borrowing costs again this week to fight inflation, despite the darkening economic outlook, by at least 50 basis points from 1.75%. “For buyers, there’s a feeling of ‘I’m going to do it now because I’ll get a better mortgage rate and I can probably borrow a little more than I will in three, four or five months. ‘” says Groocock.
But people won’t pay a huge premium for property and will think twice about overstretching themselves, experts say, with a recession likely in the fourth quarter.
Despite the buying frenzy in some sectors of the housing market, there are many signs that it is running out of steam. The official house price index posted annual growth of 15.5% in July, a 19-year high, but the comparison is artificially inflated. Sales were exceptionally weak in July 2021 as the stamp duty suspension introduced to support the market during the pandemic ended on June 30.
According to Halifax, Britain’s largest mortgage lender, the annual rate of house price growth fell to 11.5% in August. The nation’s largest homebuilder, Barratt, provided further evidence of a slowdown in the housing market, saying the number of homes booked each week through the end of August had fallen below a year’s level. earlier, and was now lower than before the pandemic, in part due to “increased macroeconomic uncertainty”.
Homebuilder stocks have fallen over the past year, with Persimmon, Barratt and Taylor Wimpey down 38% to 48% before the end of the purchase assistance package next spring. Still, many companies are optimistic, pointing to the chronic shortage of homes in the UK and the improved energy efficiency of new homes, which they say will support demand.
Consulting firm Capital Economics predicts a 7% drop in property prices over the next two years and says demand is already down sharply. With the exception of March and April 2020, when the pandemic forced the housing market to close, the balance of new buyer inquiries in the Royal Institution of Chartered Surveyors’ survey fell to its lowest level since 2008. in August.
With unemployment at a near 50-year low of 3.6%, and only expected to start rising in mid-2023 according to the latest Bank of England forecast, most experts expect the housing market to slow rather than collapse. Jeremy Leaf, a North London estate agent, said: “I expect a downturn. There are fewer inquiries and the prices are already dropping a bit. It’s becoming a more normal market, a return to what was pre-Covid. »
Savills is revising its forecast of a 1% fall in house prices next year, which may well be lowered, says Cook – “although, as things stand, not at a degree comparable to that seen during the housing market downturns of the early 1990s and 2008-09”. Prices fell 19% over three and a half years in the early 1990s and by a similar amount in 18 months in the following the credit crunch, according to the Nationwide Building Society’s house price index.
With three-quarters of borrowers having fixed-rate mortgages and a growing number of borrowers fixing for five years (instead of two), they are better placed to deal with an increase in the cost of borrowing , explains Cook. However, figures from UK Finance show that 1.8million mortgage deals are set to finish next year and will need to be refinanced in a time of rising rates.
Renting also becomes more expensive. Many tenants have been forced to opt for smaller properties – one and two-bedroom apartments – property company Zoopla reported last week, while new students in Manchester and other cities like Bristol, Glasgow and Edinburgh have to commute from neighboring towns due to a university housing crisis.
Rents hit record highs over the summer. Zoopla found that the average rent across the country has risen by £115 per month over the past year, reaching £1,051. Rent is now more than a third of a typical single person’s income. The Hometrack site, which is part of Zoopla, estimates that rent growth is near its peak, standing at an annual rate of 12.3% for the whole country, and an “unsustainable” rate of 17 .8% in London, after double-digit growth. drop during the pandemic.
Yasir Khan, 40, lives in an 8 square meter flat in Walthamstow, east London, which is crammed with a shower, toilet and stove. When he lost his job in 2018, he became homeless and lived in a shelter until Hackney Council found him the flat. The £811 rent comes from his Universal Credit. He suffers from severe depression and panic attacks, and is afraid to go out. At the same time, he feels “trapped” in the small space, which he says is “as big as a prison cell.”
“I have a lot of trouble, because I’m on benefits and it’s quite impossible to find something that suits me,” he says. He’s looking for a bigger one-bed apartment, but there aren’t many properties available in London that he can afford, at £1,100 a month. He moved to London to be near his nine-year-old daughter, who lives with his ex-wife.
“Four million people rent on the private rental market. Next year is going to be a very worrying time for them,” says Henry Pryor, a buying agent. “The uncertainty is great at the moment, people are worried about employment. Mortgage lenders are more concerned with the self-employed, homeowners want bigger deposits – that’s what it looks like when the housing market is hot.
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