The news in the past few days has been dominated by the mini-budget, volatility in the value of the pound, and speculation regarding both bond yields and future interest rates.
We will all have our own views on the political merits or demerits of the government approach but we need to remain aloof from the wild predictions of impending economic doom and stick to the evidence before us at the time of valuation.
We have all seen our energy bills rising. The cap on energy prices will give some immediate relief but the longer term trend is towards a sustained period of higher prices. Over time, this may lead to increased interest in energy efficiency but there has been no evidence of this translating into any benefit to value. That may change in coming years but there is no evidence of it yet.
There may also be more desire for people to sell large family homes that they no longer need.
Mortgage interest rates
As the Bank of England base rate rises, mortgage rates will also rise. Banks have currently withdrawn a number of products whilst they go through a re-pricing exercise but they have access to funds and liquidity is not a problem. People taking new mortgages or transferring products right now will face some challenges but this is a small share of a large market. Also, whilst employment rates remain high, people are able to service their current mortgages and we do not expect a wave of repossessions.
Changes to stamp duty thresholds should help to stimulate demand, even though interest rate rises will make mortgage affordability tighter. The net effect may be neutral.
Immediate short term effect on the market
A sale that was agreed a few weeks ago may not now be affordable in terms of the expected mortgage payment so, over the next few weeks, we are likely to see some sales either falling through or being renegotiated.
Buyers looking now will be looking based on new stamp duty and interest rates and prices will reflect that new situation. This will vary across the country. All we can do is talk to local agents and gain a picture of how their sales book is performing.
What do we need to be looking at in terms of valuation evidence?
The key here is to stick to recent sales evidence. We are valuing today based on recent sales, not projecting a value into an uncertain future. The most relevant comparable when the market may be turning are those closest to the date of valuation. If using Sold Subject to Contract comparable, we must phone the agent to confirm these and confirm the status of the sale as under offer or exchanged. Under offer comps should be avoided as the sales may well fall through or be renegotiated as pointed out above.
What signs do we need to be alert to?
The market may turn. The usual signs are a sudden and sustained downturn in sales together with cuts in asking prices. Now, more than ever, we need to be in close touch with agents so that we are up to date with local market trends.
If we enter into a large recession and house prices crash then there will still be transactions. Why? There is always a certain amount of baseline churn in the market
- People die and those who inherit sell the house
- Houses are repossessed and sold by the banks
- People face a change of circumstance such as marriage, divorce, new children, etc and need a different property
- People relocate for jobs
In all these situations, there is still a transaction and people still need survey advice.
Crystal ball – this is my opinion and I may be wrong
Some pundits are predicting a housing market crash. I don’t view that as likely for several reasons
- People have jobs and employers are struggling to fill vacancies
- Energy prices for business are stabilising so we are not expecting mass bankruptcies and the job losses that follow
- There is liquidity in the banking sector and mortgages and business finance will remain available
- There is still a lack of supply of housing in the UK
- There is still a lot of activity from overseas buyers which may accelerate in some big cities given the currency fluctuations and projected lower value of the pound into the medium term
What do I expect?
- As mortgage rates rise and affordability becomes tighter, I think prices will stabilise and price growth will stay low for the next year to 18 months. This follows a period of strong price growth.
- In some localised areas, there may be small falls but I do not expect significant falls
- In the short term, there may be a pause in activity with fewer properties being put on the market.
The key message is to hold on to our nerve and stick closely to the evidence. We are here to reflect the market, not to set it or predict it.
Author: Richard Ballam, Regional Director