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Home Planning & Construction News Will the housing market crash in 2022?
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WILL THE HOUSING MARKET CRASH IN 2022?

September 28, 2022
17778


AS PROPERTY PRICES FALL AND THE SHOCKWAVES FROM THE SEPTEMBER MINI-BUDGET ARE
FELT, INDUSTRY VOICES ARE BEGINNING TO WONDER IF A HOUSING MARKET CRASH IS ON
THE HORIZON FOR THE UK. HERE, PBC TODAY EXPLORES THE REASONS A HOUSING MARKET
CRASH MAY-OR MAY NOT- HAPPEN

As we all know, a strong demand to buy and a limited supply of available
properties tends to keep prices healthy, averting the chances of a housing
market crash. But the recent Rightmove House Price Index found that the average
price of a property coming to market had dropped by nearly £5000.

PMI data also shows a slowdown of housebuilding since May 2022, indicating less
properties coming to the market.


THE IMPACT OF THE SEPTEMBER MINI-BUDGET

Chancellor of the Exchequer Kwasi Kwarteng’s mini-budget on 23 September sent
shockwaves through the financial and construction sectors, with plans to scrap
the cap on banker’s bonus scrapped- and corporation tax and national insurance
facing severe cuts.

The response from the market was swift, as the value of the pound plummeted to a
37-year low against the dollar, and performing similarly against the Euro and in
Asian markets.



The International Monetary Fund even issued a statement, saying it was “closely
monitoring” the situation in the UK and urging the Chancellor to “re-evaluate
the tax measures”.

The Bank of England has since announced it will take preventative measures in a
gilt purchasing operation. The Bank will will carry out temporary purchases of
long-dated UK government bonds, to “to restore orderly market conditions”.

Industry responses to this unprecedented move have been generally lacklustre:






HOW DOES THE SEPTEMBER MINI-BUDGET AFFECT THE HOUSING MARKET?

Despite the BoE’s measures, interest rates may still rise, as the Bank
acknowledged in it’s statement. This is already having an impact on ordinary
people as banks are temporarily suspending their mortgage loan products- HSBC,
Santander, Skipton Building Society, Virgin Money and Halifax have already done
so and others are expected to follow.

In a statement, HSBC said: “In order to ensure that we stay within our
operational capacity, from time to time we need to limit the amount of business
we can take each day. Our broker products will be available again tomorrow.”

Santander commented:  “We will be removing our 60% and 85% loan to value
products for new customers and increasing other rates for new and existing
customers from 10pm this evening.”

“Customers who have already applied by this time will not be impacted. We
continually review the products we offer in light of market conditions.”

HSBC also temporarily withdrew its new business residential and buy-to-let
products on Tuesday.

Gary Wright, co-CEO of payment technology firm flatfair, said: “While those
currently renting may be wishing for recent macroeconomic shocks to cause a dip
in house prices, the fact is that higher mortgage rates means many buy-to-let
landlords will be tempted to pass on the higher costs to their tenants.

“In the midst of a punishing cost of living crisis, private sector rents rising
any faster won’t be sustainable. And yet both Labour and the Conservatives have
reiterated pledges to increase the proportion of homeowners, despite climbing
house prices continuing to put ever more people out of the reach of the housing
ladder. There’s an underserved demographic in current political discourse –
Generation Rent.”


THE COST-OF-LIVING CRISIS IS IMPACTING BUYER’S ABILITY TO SAVE AS HOUSING STOCK
CONTRACTS

Whilst the drop in property prices shown in the summer indices could be a
typical summer dip in prices as affluent buyers focus on other recreational
expenses, a large proportion of potential first time buyers and renters looking
to move into homeownership are facing an onslaught of increased costs from the
cost-of-living crisis.

Factors such as the rising energy price caps are impacting their ability to save
or prove they can afford a mortgage. A lack of government support as Help to Buy
comes to an end only compacts these issues.


THE END OF HELP TO BUY

The 2013 Help to Buy scheme, which allowed first time buyers to secure a
mortgage with only a 5% deposit, is coming to an end in March 2023 and
applications will no longer be accepted after October 2022.

As general inflation and rising interest rates continue to push prices up and
there is no support from the government, many buyers will be priced out and
demand will drop significantly.

A forecast from the American bank Citi predicted inflation would rise hit 18% in
2023, the highest level in nearly half a century and resulting in the rate of
price rises for consumers to be at nine times the Bank of England’s target.

Schemes such as First Homes and Deposit Unlock are designed to fill the gaps
left by the end of Help to Buy, but they are not perfect replacements.

Deposit Unlock, a collaboration between housebuilders and lenders, also offers a
5% deposit for new build homes and is supported by housebuilders, who pay for
insurance to protect up to an additional 30% of the property’s value on behalf
of their buyers to limit the risks for lenders.

But the scheme is not as generous as the equity loan scheme and will require
salaries which are 10-15% higher. This will limit the number of suitable
candidates and in turn reduce demand.


WILL THERE BE A REPEAT OF THE 2008 HOUSING MARKET CRASH?

It is worth remembering that the world has changed significantly since 2008 and
the market has changed accordingly.

Having learned some lessons from 2008, banks are now much more stringent on
ensuring potential buyers can afford their mortgage and properties aren’t as
overestimated as they once were. This has reduced general risk in the market.

Post-pandemic, buyers have different needs and desires. Normalised working from
home means a young professional or families can expand their search area from
the city centre, seeking more rural locations and more affordable prices.

There is also a healthy transition in the market as older homeowners seek to
downsize, continually renewing the market with more housing stock, often in
desirable locations or condition.

Phil Tennant, chief operating officer of new iBuyer UPSTIX:

“All signs point towards demand tailing off, albeit from the frantic levels seen
during the Covid boom. A cooler market in H2 means sale times will be drawn out
even further, and some may even struggle to sell, particularly as higher rates
make mortgages more difficult to acquire.

“This pressure will be much more acute in high-value markets in the south east,
where affordability is already an issue. Landlords in particular who may be
looking to realise equity gains made over the last decade or so would do well to
move quickly.”


FIRST HOMES OFFERS A LONG-TERM SOLUTION TO THE GAP LEFT BY HELP TO BUY

Many homeowners are on fixed-rate mortgages and so won’t be affected by rising
interest rates. In fact, it may inspire some canny buyers to move now and secure
a favourable fixed rate for another five years, keeping momentum in the market.

The First Homes scheme offered by the government is similarly forward thinking,
as it offers buyers a permanent 30-50% discount on a new home. This is designed
to transform affordable housing, but it will take longer to see what impact it
has on the market.

Gary Wright, co-CEO of payment technology firm flatfair:

“Even with interest rates creeping up, it’s still significantly cheaper to pay a
mortgage than it is to rent. The issue is upfront capital – many renters
struggle to find the deposit needed to buy a home.

“So why do we expect these same people to find five weeks’ rent – a huge sum,
particularly in major cities – for a tenancy deposit? Payment technology has
evolved past this point. We should be raising consumer awareness of deposit
alternatives on the market, particularly as the cost of living crisis bites.”


WE LIVE IN INTERESTING TIMES

If the past few years (or months, or weeks) have taught us anything, it is that
things can change in an instant. As Liz Truss takes office and Simon Clarke has
been chosen as the new Housing Secretary, both of whom will likely want to make
an impactful statement on market and industry, new legislation could transform
opportunities for first time buyers.

Equally, the cost-of-living crisis and global supply chain pressures means some
people simply cannot afford to take risks or make investments. All these factors
are sure to play a role in the changing face of the housing market over the next
six months.

 

Harriet Clough

hclough@pbctoday.co.uk

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