The UK’s mortgage and the housing market are a mess, and it’s not likely to get better anytime soon.
In fact, all signs points towards an imminent market crash, with the Royal Institute of Chartered Survveyors, RICS, reporting says a forthcoming rise in repossessions is coming, while soaring interest rates price new buyers out of market, leaving housing to face it’s biggest fall in a generation.
Homeowners will struggle to make mortgage repayments and repossessions will rise next year as soaring interest rates and falling prices mark the end of the UK’s 13-year housing market boom, according to a sobering report from the Royal Institution of Chartered Surveyors (RICS).
The number of inquiries from potential homebuyers fell for a fifth month in a row in September, while sales fell to the lowest level since May 2020 when the housing market all but ground to a halt during the early stages of the coronavirus pandemic, it said.
The number of new instructions to sell has continued to fall – stock levels are at historic lows with estate agents on average listing just 34 homes on their books.
House prices have remained resilient due to the limited supply for sale, but the pace of growth is rapidly slowing with forecasts of at least a 10% price fall next year as surging interest rates heap pressure on household budgets.
On Wednesday, the average two-year fixed mortgage rate hit 6.46%, while the average five-year deal was 6.32%, the highest level since the financial crisis in 2008, according to Moneyfacts.co.uk.
The Bank of England’s financial policy committee on Wednesday said that the proportion of households struggling to pay their mortgages could rise to levels not seen since the 2008 financial crisis, if interest rates and living costs continue to climb. “It will be challenging for some households to manage the projected rises in the cost of essentials alongside higher interest rates,” it said.
However, policymakers said this was unlikely to result in a banking crisis, given that borrowers were in a “stronger position” than they were before the financial crisis. The Bank said this was partly due to caps on the amount that people could borrow for mortgages, compared with their incomes.
Soaring mortgage rates are pricing new buyers out of the market, while homeowners looking to remortgage are facing crippling increases in payments.
Rising mortgage costs and the broader cost of living crisis will outweigh any potential benefit from the government’s move to cut stamp duty to prop up the housing market, said RICS.
On Wednesday, Barratt, Britain’s biggest housebuilder, said that the average number of weekly reservations by buyers of new homes slumped by a third year-on-year between 1 July and 9 October.
Last month, RICS said that the number of homes sold in the UK over the next year will record the biggest fall in at least a decade.
About 1,000 mortgage deals were pulled from the market after Kwasi Kwarteng’s mini-budget on 23 September triggered a sell-off in financial markets and raised expectations for even higher interest rates. Many lenders have since returned with much more expensive deals.
The knock-on effect of a slowing of house sales has been a significant surge in demand in the rental market, alongside a fall in landlord instructions for new lettings.
Increasing rental rates will help landlords when they come to remortgage their properties, but as many as 30% of those with buy-to-let loans are likely to fail their renewal test, according to a report by credit rating agency Moody’s on Wednesday.
In order to refinance, buy-to-let mortgage holders have to meet affordability criteria, based on a minimum interest coverage ratio (ICR), that soaring interest rates makes more difficult to meet.
So all signs point to a gloomy future indeed for the UK’s housing market: can it be avoided at all, or is it a case now of working to ensure the crash is a short and shallow one, and does not go as deep as people fear? Only time will tell.
Written by Stephen Taylor, Propaganda CEO