It was a particularly gloomy picture revealed a month ago by RICS in its UK Residential Market Survey with the softest net balance level of agreed sales since May 2020, new buyer interest falling again for the fifth month in a row, new instructions to sell also continuing to fall, with the net balance for new market appraisals also dropping.
In that respect, it was perhaps no wonder that RICS was downbeat about the future prospects for the UK housing market, talking about ‘storm clouds being visible’. Anyone looking at that set of data might have presumed that not only were the clouds visible, they were immediately over-head and it was already raining pretty hard.
However, the big question here is whether mid-October 2022 represents a nadir, given that, at the time, we were still fully in the grip of what I now call ‘Mini-Budget Madness’ – a point from which we have already recovered – or was it merely the start of what we might expect from the housing market over the next year or so, and ‘Mini-Budget Madness’ just hastened the inevitable.
I tend to believe the former and, talking to our estate agent clients, while there is clearly a degree of trepidation in terms of market activity, there is also positivity that the worst could already be over.
Certainly, in the mortgage space, while no-one would begin to suggest that the current high level of product rates is ‘good for business’, we’ve already started to see some lenders dropping product rates – as the markets were becalmed – and even with the Bank of England increasing Base Rate this month, there appears to be a rowing back on predictions of just how high the Bank may need to raise rates in order to get inflation down.
During ‘Mini-Budget Madness’ for example, the markets were suggesting Bank Base Rate may be in excess of 6% at this time next year, but now it would appear that only further small rises, and perhaps not so many of them, may be enough to get inflation to move sharply down in the other direction from mid-2023.
We await to see just how this will play out, however there is a considerable amount of pressure now being brought to bear on lenders to move rates down off their recent highs, and this will be a positive particularly for those borrowers who want to mitigate payment shock when they remortgage, and will not harm the situation for those would-be purchasers/homemovers who might have been thinking that ‘Mini Budget Madness’ had completely scuppered any plans they had to move in the near future.
Indeed, the purchase situation is an interesting one for all stakeholders. At the start of 2022, for instance, we were told the year would be dominated by remortgage business, but that really wasn’t the case, and remortgaging only achieved ascendency during post-that Liz Truss/Kwasi Kwarteng period when every borrower and their dog who were anywhere near the end of their current deal, began to howl with anguish about what might be available to them.
And while remortgage activity is always going to be ultra-important for both borrower and adviser alike, if we can continue to move in the right direction in terms of rates and affordability stress-testing, then there is a chance that a greater number of those who want to purchase in the next year, will have the opportunity to do so.
House prices slipping off their most recent highs might be seen as a cause for huge concern by some, but actually they are only moving back to levels of a few months ago, and even if they fall a little bit further, the reality is they will still be up on where they were certainly pre-pandemic.
We have had two and a half years of almost double-digit house price growth – if that figures drops to a couple of per cent next year, and this allows more would-be purchasers – particularly first-timers – to get on the ladder, then I’m not sure it is the ‘huge’ problem that some appear to be making it out to be.
Overall, as it’s always important to stress, advisers will continue to be in demand and, as a result, whether purchase or remortgage, they have the opportunity to secure the finance these borrowers require plus ensure all other wants and needs are covered. ‘Mini-Budget Madness’ brought home to the public just how important an adviser can be, and regardless of the housing environment we are moving into, that is not going to change.
Mark Snape is chief executive officer of Broker Conveyancing