Prices Rising but ‘Clear Headwinds’ Face the Housing Market

Kensington area in winter
Property prices continue to rise on the back of pent-up demand created by the first national lockdown, combined with buyers rushing to take advantage of the stamp duty holiday before it ends next March. For these reasons, the latest numbers, while impressive, have also come with a warning that we should not expect this upward trajectory to last indefinitely.

Remarkably, given that we are living with a pandemic, house prices leapt by 7.5 per cent over the past year, according to Halifax. The average home is now almost £18,000 more expensive than a year ago. Meanwhile, rival lender Nationwide building society said similar in its October house-price index, recording annual house price growth of 5.8 per cent, the fastest rate for five years.

However, there are warnings on the horizon. Halifax cautioned: ‘With a number of clear headwinds facing the housing market, we expect to see greater downward pressure on house prices as we move into 2021.’ Nationwide concurred that prices may fall as transactions drop away: ‘Activity is likely to slow in the coming quarters, perhaps sharply, if the labour market weakens as most analysts expect, especially once the stamp duty holiday expires at the end of March.’

Certainly, the demand for more space – both inside and out – created by the experience of being locked down, seems to have peaked. Autumn, and indeed winter, is not the best time of year to view houses, with gardens not at their best, so it is no surprise that demand is starting to drop off. Those who are in the midst of transactions in an effort to save money on stamp duty continue to forge ahead, although lender, legal and surveyor delays are still an issue. Borrowers are having to be patient.

In amid all this economic uncertainty, the good news is that mortgage rates remain low, with the Bank of England’s Monetary Policy Committee voting to keep base rate on hold at 0.1 per cent for the foreseeable future. But it has agreed to a further £150 billion of quantitative easing and it hasn’t ruled out negative interest rates in the future, if required.

While lenders are keeping rates competitive for now, there has been further tightening of criteria for certain groups – the self-employed in particular. Lenders are worried about variable incomes, with some reducing the amount self-employed people can borrow accordingly. Nationwide has reduced its maximum loan-to-value (LTV) for the self-employed to 85 per cent, although it did say that it hopes this would be a temporary measure. Metro Bank is now demanding more evidence from self-employed borrowers, asking for six months’ bank statements rather than three months of payslips. NatWest has also reduced the amount the self-employed can borrow to four and a quarter times income, down from five times income.

The picture still isn’t much improved for first-time buyers either, with high LTV mortgages few and far between, and those on offer not hanging around for long. Accord Mortgages is the latest lender to offer a flash sale 90 per cent LTV mortgage – when lenders offer them for one or two days until funds run out – although Accord ended up extending the deadline for a further few days.

In these tricky times, good advice is more crucial than ever, which is where a whole-of-market broker such as AWS Financial Services can help. We will source the entire market to find the right solution for your lending requirements. We specialise in helping day-rate contractors and the self-employed find competitive deals, so if this is you, do get in touch for more information.
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