Well its been an exhausting week or so with what feels like a barrage of announcements from the government, the Bank of England and the major lenders. Matthew Miller, Miller Town & Country's Business Development Lead digs into each one of those, and then discusses how we anticipate the property market will be impacted.
Lets start with a summary of the headlines:
Most recently, we heard on Tuesday 27th September that major lenders were pausing the issue of new mortgages. While this headline likely caused many people some high anxiety, the lenders stressed that it is just a temporary measure given the current uncertainty over interest rates. The lenders need to know how to price their products, and given the rapid-fire interest rate increases (more on that later), they are looking for a little more certainty, at which time new mortgages will be offered again. Importantly for buyers, if you already have a mortgage offer in place, the majority of lenders are indicating that those offers will be honoured.
Last Thursday 22nd September, interest rates were increased yet again. The interest rates set by the bank of England determine the basis for the cost of borrowing money, and directly impact the rates charged by mortgage lenders. The Bank of England base rate currently sits at 2.25% (highest level in 14 years), up from 1.75% in August, a 350% increase since February 2022 and an eye-watering 800% increase since the super low rate of 0.25% in December 2021. Regarding what’s yet to come, analysts predict that the Bank of England base rate will rise above 4% by year end 2022, and may hit 5% by July 2023 – mortgage rates will of course be higher still.
And then on Friday 23rd September, the chancellor announced the ‘mini budget’, which included big news for Stamp duty (the tax you pay when buy a property). The price threshold above which stamp duty is paid doubled from £125,000 to £250,000, the threshold for first time buyers increased from £300,000 to £425,000, which means that 2/3 of homes are now exempt from stamp duty for first time buyers, and the price threshold up to which first time buyers will pay discounted stamp duty was increased to £625,000, up from £500,000.
So what does all this mean for our local West Devon and East Cornwall property market?
Impact on First Time Buyers
The news is decidedly mixed for this group of buyers – removing the cash-up-front stamp duty payment for homes less than £425,000 will be a big help to the near term cashflow of first time buyers, a welcome relief as they will already have been working so hard to save up the deposit for their home,
However on the flip side, the longer term affordability of homes has become more challenged, as first time buyers are likely to receive mortgage offers with relatively high interest rates, unless they are able to provide a significantly higher deposit than is typical today. These higher interest rates will lead to a higher monthly mortgage bill, adding to the already higher energy and food costs we are seeing at the moment, which will likely force many first time buyers to reduce the total price they can afford to pay for a home.
What about those thinking of or needing to sell near term?
Although many of the scaremongering headlines would have you believe otherwise, houses will still sell, as people will still need to move and buy those houses, whether for job changes, changes in family situation or in financial circumstances.
The critical thing in this rapidly changing market will be for a seller to price their home for today’s and tomorrow’s market, not for yesterday’s. This means not getting too hung up on what your neighbour’s house sold for, even if it was just a couple of months ago, or putting too much stead in the land registry data of sold prices – which reflect sales that completed in the last quarter but on prices which were agreed 3+ months prior to that. Given how quickly market conditions are shifting, what matters is what’s happening today, and what we can anticipate will happen a week to a month from now.
As a seller who is almost certainly looking to maximize the price that you achieve for your home, the prudent (and efficient!) course of action is to work with your agent to set an attractive price from the outset (when properties get the most attention on the portals), rather than setting a more aspirational price to start with, then having to reduce, potentially more than once, when you don’t find a buyer, and have to play catch-up with the market. In addition, the perspective of many potential buyers is that the longer a house is on the market, the more desperate the seller must be getting which leads them to put forward lower offers – another reason to list at an attractive price from the outset, to achieve a quick sale.
So is now still the right time to sell?
Yes – in fact, the sooner the better. As economic conditions worsen via higher inflation and increased interest rates, we can anticipate more homes coming to market as people choose to downsize or are forced to through affordability concerns. Right now buyer demand still just about outstrips the supply of homes on the market, a hangover from the pandemic and the prior stamp duty holiday, however we foresee supply and demand balancing out, as we discussed in a blog post back at the beginning of August.
As a seller, you are always better positioned when fewer homes are on the market – you have more buyers interested in your home and therefore can command a higher price. As mentioned earlier, down the road homes will certainly still sell, but it might take longer, and you will likely have to reduce your price expectations.
What should buyers be expecting in this transitional market?
The great news for buyers is that as we get towards 2023 there will be an increasing choice of properties out there vs. what we’ve seen for the past couple of years. There should also be some pretty motivated sellers, so you should be able to achieve a competitive price for that home you fall in love with.
Of course the challenge will come on the finance side if you’re buying with a mortgage, so be sure to have conversations with your financial advisor or mortgage broker ahead of submitting any offers to confirm affordability.
Cash buyers will continue to have the upper hand, not being vulnerable to interest rate increases. Of course they are still at risk from disruptions either up or down the property chain from their transaction, so if you are buying as part of a chain you should expect to see a higher likelihood of the chain breaking down for financial reasons than in recent years. Our job as agents of course is to keep tabs on progress up and down the chain, and work with the other agents to find creative solutions to hold chains together if at all possible.
Some final top tips from someone who has guided many clients through this before
Firstly don’t panic. Imagine property like boats in a harbour, if the tide goes down, all the boats go down, and if the tide come back in they will all go up. You are buying and selling in a relative market – you might get a little less for your own property, but you’ll also pay less for your next home until the tide changes.
Secondly – experience will be key. Agents with experience of this kind of market will know what to do and less experienced agents are likely to flounder. You may have to pay a little more for that experience, but from experience, this will be a wise investment if you want to optimize the eventual sale price and minimize the added stress that comes with a lack of service and support.
Finally – you need an agent who goes the extra mile. We are likely to see more properties being down-valued by lenders, and subsequently prices reduce. Mortgage lenders and buyers alike will be more cautious. Buyers will need to be encouraged, sellers will need to be supported and provided with the right advice at the right times. The marketing of a property will slow, and agents will have to work a lot harder to ‘sell’ property. Simply sticking it on Rightmove and waiting for the phone to ring will no longer be enough!
Of course if you’d like a no obligation and confidential discussion about your particular situation, just give one of our offices a call, our team would love to help you navigate these stormy seas.