Whilst all of us working in the property sector are clearly affected by the current very sluggish market, I think there is a point where we need to sit back and actually reflect on what is actually good, not just for the property market longer term, but also for society as a whole. In short, is it really in all of our interests for house prices to remain at the current levels, where large swaths of society either can’t or struggle to get onto the housing ladder?
Heaven forbid that bankers, estate agents and brokers could be seen to be altruistic, but we need to actively avoid measures that encourage and inflate an already historically high market. These are our customers and we need to nurture and protect them in ways that goes beyond just providing point of sale advice to include protecting them from daft acts of legislation that are against their long term interests.
Pricing are falling
One thing I think we can all agree on (perhaps aside from one or two estate agents who are trying to resist the tide), is that sale prices are falling. Halifax and Nationwide for once agree and have YoY prices falling at 3.2 per cent and 3.3 per cent respectively at the end of October.
Given that at the start of 2022, average house prices to earnings had reached an astronomical 8.84X (UK Finance), even higher than in 2008 at the peak of the financial crisis (7.81X), I for one, think that falling prices are something that is not only inevitable, but something to be welcomed. The only debate for me, is how far they need to come down.
Stamp duty is not the answer
Cutting stamp duty was, in hindsight, the wrong thing to do post COVID, given the pent-up demand that existed anyway – all that resulted was a jump in house prices that no one really needed.
Scroll forward to November 2023 and the lack of demand isn’t because buyers are ‘reluctant’, it’s because they largely can’t afford the mortgage rates that, in many cases, have tripled over the last 18 months.
Removing or reducing stamp duty doesn’t make mortgages more affordable and the people who will benefit most will be cash buyers, surely not the intended recipients
Letting the market find a natural equilibrium
Quite simply, low interest rates have allowed customers to borrow a lot more than they could in the interest rate environment in which we now find ourselves. How that came about and whether it should have been allowed, I’ll leave for others to discuss. The simple reality, is that if rates stay at these levels, or even much above 3 per cent, for any sustained period of time, houses prices at current levels aren’t sustainable long term.
As this government’s (and the next) clear priority is inflation over almost everything else, it looks unlikely that interest rates, even if they reduce, will only be doing so slowly and not to anything like the levels we have seen pre-2022. If that is the case, why would we try and prop up a falling/lower market when lower prices finally mean many people can start to access a market that was previously denied to them?
This house price fall is unique
Unlike previous market falls (I’m old, I’ve seen a few), this one is very different and to me gives me less cause for concern but also some optimism. Some key points:-
- Whilst annual house price inflation may be running around -3.3 per cent, wages are growing at an annualized 7.9 per cent (ONS), which combined, creates much greater affordability.
- Unlike 2008, nearly all mortgages are now on repayment. This means even higher LTV loans are less likely to get trapped into negative equity. A gentle and steady price fall allows an approximate maintenance of equity
- There is still a big supply side imbalance which shows no sign of changing in the immediate term
In summary, we need to really let this play out. We don’t need any more government initiatives and this falls into the same camp.