Is the housing market a bubble about to pop?

As the children finally go back to school after several months at home, and the government tries to encourage us all back to the office, the housing market has returned to business as usual. Better than expected – although we are still living with a pandemic, many house buyers are getting on with moves delayed by Brexit and then Covid-19. Yet the market has recovered to such an extent that it is prompting fears that we have a bubble on our hands.

In this newsletter, AWS Financial Services examines the outlook for the market as we head into autumn. With lenders tightening criteria as they get to grips with the new market conditions, we also look at contractor mortgages and how those paid a day rate can put themselves in the most vital position possible for getting a mortgage.

Do get in touch if we can help with any of your mortgage requirements.

There has been a flurry of house-price data so positive that there are fears that it is simply not sustainable in the past few weeks. Nationwide building society revealed that August saw the most significant monthly rise in prices in more than 16 years, hitting a new all-time high. The lender said that the recovery was ‘unexpectedly rapid’ as price falls in May and June were reversed on the back of the easing of pent-up demand from lockdown, and before that, when people put moves on hold because of Brexit.

The mini-boom is also reflected in figures from the Office for National Statistics (ONS), which show house prices increased by 0.2 percent in May than the previous month. This suggests that the recent uptick inactivity is not just a reaction to lockdown and people wanting more space, both inside and out. It goes back further to the Boris Bounce earlier this year, following the election result and four years of big decisions – such as moving house – being put on hold because of Brexit.

The stamp duty holiday in England and Northern Ireland has helped boost the market, bringing some activity forward as buyers try to take advantage of a not-inconsiderable saving of up to £15,000 before the incentive is removed at the end of March. Subsequently, estate agents are busier than they have been in years. Prices have risen as supply remains limited – whether that will be the picture in a few months remains to be seen. For the moment, there is confidence, and at AWS Financial Services, we are undoubtedly busy with mortgage requests from those buying – whether it’s a primary residence, buy-to-let, or holiday let – or those remortgaging.

The question is whether the market will dip considerably or even crash as government support schemes wind down, such as leave and mortgage payment holidays come to an end. There have already been several job losses announced, and sadly it is likely that there will be many more. The government’s official forecaster, the Office for Budget Responsibility, expects house price falls next year. Simultaneously, the EY Item Club has gone a step further and predicted a 3 percent fall in prices by early 2021.

Of course, if prices did dip, it would not be bad for all concerned, as price rises are not good news for first-time buyers. They face a double whammy at the moment, with several lenders pulling back from high loan-to-value deals because they are worried about the economy and where things are going.

Buyers should proceed with caution and seek independent mortgage advice before committing to a purchase. Get in touch if we can help.

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