Fears of a house price crash are growing as the UK slips into recession and thousands of homeowners face a mortgage payment shock at interest rates. This is bad news for those hoping to sell their home in today’s troubled market.
The average property price fell by almost £4,500 in November to £263,788, a drop of 1.4 percent, Nationwide figures show.
That comes on top of the 0.9 percent slump in October.
The Office for Budget Responsibility predicts prices will fall by nine percent over the next two years.
Five-year fixed mortgage rates soared to more than 6.5 percent after former Chancellor Kwasi Kwarteng’s mini-Budget meltdown, which means the cost of servicing a home loan almost tripled in a year. Rates have now retreated slightly.
We are now in a buyer’s market as vendors are willing to cut prices to secure a sale, said north London estate agent Jeremy Leaf. “Buyers are returning as mortgage rates fall. They know they are in a stronger position and are negotiating hard.”
The property market is facing challenging conditions and vendors can see which way the wind is blowing, said Alex Lyle, director of Richmond estate agency Antony Roberts.
“They are being sensible and considering lower offers, sensing that sentiment has shifted a little over the past few months.”
The market always softens in the run-up to Christmas so we will get a clearer view of how things stand in the New Year.
There are some positives, though, so vendors should not give in too easily.
A house price crash is often accompanied by a sharp rise in unemployment, which means people cannot keep up with their mortgage repayments and become forced sellers.
That has not happened as there are a million job vacancies, even if wages have fallen behind today’s rampant inflation rate, making people poorer in real terms.
In another positive for vendors, the UK has nowhere near enough homes for its rapidly accelerating population of around 68 million.
Prices would have fallen further were it not for two main factors, strong employment and shortage of supply.
READ MORE: BoE leaves taxpayers with £200bn bill and you will pay it
The Bank of England is expected to increase base rates from today’s three percent at its next meeting on December 15, but rates may peak in the spring, said Mark Harris, chief executive of mortgage broker SPF Private Clients. “Thankfully, the situation has eased for borrowers as lenders return with more attractive fixed-rate mortgages.”
Karen Noye, mortgage expert at Quilter, says demand is being supported by Kwarteng’s stamp duty cut, one mini-Budget measure that new Chancellor Jeremy Hunt did not reverse.
She expects a short house price dip and suggested buyers wait for prices to bottom out before buying ahead of the subsequent recovery. “However, timing the market is no easy feat and it is unwise to put life on hold if you need to move or buy.”
Some first-time buyers might welcome a crash as it could make property more affordable.
In practice, rising mortgage costs have more than offset any house price dip so far, said Avinav Nigam, co-founder of real estate platform IMMO. “Mortgage affordability stress tests mean that many young people who can afford to buy today still cannot do so.”
Lower prices will also deter new construction by shrinking housebuilder profit margins, worsening today’s shortages.
Things look bleak but with demand still outstripping supply, we might be spared the worst ravages of a crash. Buyers may not have it all their own way.