Halloween statement: what’s next for London’s ‘nightmare’ property market?

London estate agents had been waiting for September to get caught up in a busy fall sales season, but the mini-budget at the end of the month set off a roller coaster of events that sent interest rates and mortgage payments skyrocketing. and triggered the change. of the housing market.

Britain now has its third prime minister in seven weeks, and Monday will see the third tax return in four weeks, arguably the most anticipated autumn return of all time.

Jamie Durham, chief economist at PwC, believes the swift appointment of Rishi Sunak as prime minister could have a stabilizing effect but will not bring interest rates back to the record lows of the past decade.

“One thing is for sure,” he says, “medium-term interest rates will be substantially higher than they have been since the 2008 global financial crisis, which will have an unavoidable impact on the housing market and people’s ability to to borrow and spend.

“People will ask, ‘Do I feel financially secure enough to buy a new house?’ and for many the answer will be, ‘No’”.

haunted by the nineties

Most people do not envision a return to the dark days of the 1990s, but a throwback to the post-Brexit vote stalemate.

Those who need to move can buy a smaller property or one without a garden. This would reverse some of the buyer behavior of the pandemic era, during which house prices in the capital rose by 14.4 per cent – almost £70,000 – on average between September 2020 and last month, according to The property registration.

Durham doesn’t expect a distressed sell-off (when homeowners are forced to sell their properties cheaply and quickly) or a crash.

He predicts that prices will return to what they were three or four years ago, before the 2019 Conservative general election victory and subsequent “Boris bounce”, when London house prices were slowly declining and had down 1.4 percent in a stagnant market shrouded in Brexit uncertainty.

“There will be less people chasing each property and less oversupply. In total, the market is likely to move much more slowly than we have seen in the last three years,” adds Durham.

‘Trying to sell is a nightmare’

Author Bex Burn-Callander, 39, feels the real effects of this turbulence. She has always lived in London, but now she is trying to sell her £550,000 three-bedroom Lewisham terrace flat to buy a multi-generational house in Yorkshire.

Burn-Callander is the carer for her mother, who lives in Pimlico, on the other side of London, so with her husband Patrick and their two young children, they move north to buy a bigger place together.

“The plan is to sell our houses and buy a place together in York, which has excellent schools and is halfway between London and Whitley Bay, where Patrick is from,” says the author.

First, they must sell both flats, in very different parts of the capital, which has become more difficult since the mini-budget.

“It’s a nightmare. We listed our property over two weeks ago and haven’t had a single viewing. Our real estate agent, Sebastian Roche, says the market is extremely challenging,” she says.

“It seems like no one is looking to buy right now because mortgage rates are skyrocketing; everyone hopes for a bit of political stability.”

His mother has just briefed a real estate agent and is preparing to put her Pimlico flat up for sale as well.

In addition to the sale, they are also watching mortgage rates closely. “We are in a bind because we have to sell two properties before we can buy our next house. If mortgage rates are ridiculously high at the time, we may have to rent for a year or so until they come down again,” she says.

“It’s hard because I really want to take care of my mum and be closer to Paddy’s family. We have no control right now.”

Will the Halloween Declaration help?

Officially called the Medium-Term Fiscal Plan, Jeremy Hunt is scheduled to deliver the new government’s financial plans on Monday, Halloween.

While estate agents, buyers and sellers expect the Chancellor to maintain the stamp duty reductions introduced by Liz Truss, the new system, which removes the tax levy on homes for first-time buyers up to £425,000, is a blunt tool that does not address the problem. shortage of mortgage products.

“We would like to see how existing stamp tax cuts will be implemented and maintained to encourage buyers and stimulate the housing market and see the government unveil plans to help first-time buyers through other incentive schemes,” says Simon McCulloch, head of transfer. Smooth website.

Just to rub salt in the wound for those who dream of owning their own home, the declaration comes on the same day as the Help to Buy deadline – the last chance for first-time buyers to buy a property using the loan scheme of government capital.

The program, which has been in place since 2013, allows first-time buyers to borrow a mortgage on a newly built home with a five percent deposit.

Without it, they now face two hurdles: the 10 per cent deposit required in London and the ability to make higher monthly mortgage payments. McCulloch is calling for plans to incentivize mortgage lenders to reintroduce affordable rates or for the government to extend Help to Buy.

“We could see larger stamp tax cuts in certain areas of the country, or designated investment zones, to help the leveling process,” says Lawrence Bowles, an analyst at Savills.

Heading to a house price horror show?

It is still too early to see sales and prices falling in the data. In September, Rightmove recorded a two per cent increase in demand from a year earlier and a 6.9 per cent rise in average sale price to £695,600.

There have been fewer price reductions in London so far: 31 per cent of houses on Rightmove have been reduced in price compared to 33 per cent last year and 36 per cent in the 2019 silent market.

This reflects the flow of business from buyers who are close to exchange or completion and have already secured a good mortgage offer. But some sales are starting to drop.

“We’ve already noticed a significant drop in inquiries since the mini-budget,” says North London estate agent Jeremy Leaf.

“Clearly, many homebuyers, particularly those taking their first steps up the ladder, have hit the pause button because they simply aren’t sure how much their mortgage costs are likely to increase.”

Ahead of official Savills house price forecasts next week, Bowles predicts a slowdown in average annual house price growth for Christmas, from 5.4% in September in London to around five, and a drop in 10.1% to 7.5% across the UK.

Knight Frank’s Chris Druce agrees with research showing prices in London peaked last August.

Leading commentators use the term “correction” or “adjustment” of prices, which means a fall in house prices, but to a lesser extent than a crash.

Existing owners need not panic

Realtors are now basing their forecasts for next year on the base rate that peaks below 5 percent, markedly different from the near-zero we’re used to but still below the expected seven percent.

There are already signs of stabilization in the mortgage markets for existing homeowners. Since the mini-budget when mortgage products (especially high loan-to-value) were taken off the market to be revalued, there has been a recovery in lower risk categories.

For second- and third-time homebuyers who are moving house or up for renewal, there are options like temporarily switching to an interest-only mortgage; extend the term of the mortgage to reduce installments; or taking a mortgage payment vacation.

“There are a variety of emergency options to help these people avoid repossession or forced sale that are not available to first-time mortgage applicants,” says Bowles.

He also advises researching moneyfacts.es where there are variable-rate loans at 2.59 percent (as of Friday, October 21), which is much lower than two-year fixed rates of around 6 percent.

“The bank rate would have to make very large jumps very quickly to get caught,” he says.

Younger people unable to save for a deposit due to rising rents will move back into the family home (repeating the pattern of the pandemic) and more people will start sharing accommodation to reduce rents (reversing the pattern of the pandemic), He says. .

Accidental owners

A slow sales market but a brisk rental market will push would-be sellers to become accidental temporary owners, Bowles predicts.

Danielle Bennett lives with her partner in a duplex apartment on the top floor of the Tooting Bec Heaver Estate, a conservation area for Victorian architecture.

The 37-year-old barrister, who can work between offices in Manchester, Leeds and London, plans to move from her “light and airy split-level flat” to Harrogate to be closer to her family.

“I am incredibly sad to be leaving, but I am starting a new chapter with my partner and I want to be close to my niece, my parents and my grandparents,” she says.

Bennett is unaffected by the economic turmoil, having bought the two-bedroom apartment in the midst of the pandemic, and has had viewings for the £675,000 flat in the last two weeks.

However, if he can’t sell, Bennett is also considering switching to a “consent-to-rent” mortgage.

Instead of a buy-to-let mortgage at a higher interest rate, a consent-to-rent agreement is only for a short period of time. It is also looking into Airbnb as a “plan C.”