What’s next for house prices: steadier times, a return to 2021, or another 5% rise?

Posted 01st November 2022 by sdlt-admin

Have you purchased UK property that you paid Stamp Duty Land Tax on? See if you are eligible for a refund from HMRC on overpaid SDLT. We’ve reclaimed over £15 million in the last 12 months on overpaid Stamp Duty.


Read the article in Country Life


“With a new prime minister having got his feet under the table with relatively little fuss, life seems to be returning to what passes for normal in the 2020s. But where does that leave those who are thinking of moving house?

Soaring mortgage rates played a key part in the downfall of Liz Truss. As such, newly-installed Prime Minister Rishi Sunak will be treading carefully as he unwinds the brief reign of financial chaos we lived through under the previous government. And Tom Bill, head of UK residential research at Knight Frank, says it’s all about ‘turning back the clock’, and restoring the confidence of debt markets.

It’s hard not to be reminded of the iconic scene in the original 1978 Superman movie, in which The Man of Steel literally spins the earth backwards to bring Lois Lane back to life. It’s a time travel mechanic that would have Einstein and Hawking turning in their graves, but somehow it works — but will Sunak and Jeremy Hunt’s equivalent do the same thing? Reuters reported that money markets are almost back to where they were in mid-September, but mortgage rates are dropping much more slowly. Yet they are dropping.

‘Once there is relative stability, the UK housing market can enter a second and more predictable phase,’ says Tom, who goes on to explain why prices will drop to ‘where they were in the summer of 2021’.

‘More certainty will underpin transaction volumes but not necessarily prices. In fact, higher trading volumes would only hasten the price correction we expect will take place.


Read: How do I gain a Stamp Duty Refund?


‘As mortgage rates normalise and more people roll off five-year fixed-rate deals, this will continue to put downwards pressure on prices… [but] low levels of unemployment and well-capitalised banks mean we do not expect the sort of double-digit price declines seen during the global financial crisis.’

It’s worth noting that not everybody agrees. Some agents are already reporting falling prices in some areas, but according to David Hannah of Cornerstone Tax, a price drop isn’t necessarily a done deal regardless of mortgage rates — and that’s down to foreign buyers and a lack of new building which he traces to soaring cost of materials.

‘The fall of the pound has made the market very welcoming for foreign investors which I think will continue to drive the UK market,’ David says.

‘There is also a supply problem in the UK property market which rising mortgage rates aren’t going to solve. Therefore, I don’t think we will see a property market crash, I think that come December 2023 we will still see an increase of around 5% in property prices.’


Read: How much Stamp Duty do I pay on a buy-to-let?


That view is something of an outlier — our colleagues over at MoneyWeek see most price drop predictions in the 5%-15% bracket. Lawrence Bowles of Savills is among those expecting prices to cool off, though he uses the rather delightful euphemism ‘affordability pressure’ instead of ‘price cuts’. And there is optimism: he suggests that the new government has already made things look far less drastic than they were a week or two ago.

‘Anything that helps bring certainty and confidence back to the market is likely to reduce borrowing costs,’ he says.

‘That, in turn, will reduce affordability pressure for households securing mortgage finance, for housebuilders starting on new sites, and for investors buying and operating homes for rent….

‘We can still expect to see affordability pressure grow in the coming months as mortgage costs rise. We can take some comfort, at least, that this pressure will peak at lower levels than we might have feared previously.”

How long will that pressure last, though? As we noted last week, high interest rates in conjunction with high inflation haven’t been seen together at the same time in Britain for 40 years, and it’s clear that the unprecedented years of close-to-zero interest rates we’ve seen since 2008 are a historical anomaly that’s now over.

‘Rates are extremely unlikely to return to the lows of the past 15 years. We are entering a new monetary policy landscape,’ says Knight Frank analyst Flora Harley.

‘Psychology and business models will have to “rebase” to this new monetary world which will take some time after the market settles. Key to the path of this new normal will be inflation…

‘For housing markets, it is clear we will see price corrections, as affordability bites… But the path for rates indicates that pressures will alleviate by early 2024. Rates have made a step up and won’t return to the lows of the past decade but, notwithstanding any inflationary shocks, there will be some respite from the current levels.’


Have you purchased UK property that you paid Stamp Duty Land Tax on? See if you are eligible for a refund from HMRC on overpaid SDLT. We’ve reclaimed over £15 million in the last 12 months on overpaid Stamp Duty.


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