Speaking on a webinar about Kensington Mortgages, Richard Donnell, executive director at Houseful, said that there was a 23 per cent drop in housing sales compared to last year, with the long-run average of house sales coming 1.2 million.
Donnell added in the last 50 years, roughly 75 per cent of all housing transactions were using mortgage finance to support them.
“The big story within this though is that it’s people buying with a mortgage where the real squeeze has been, people delaying purchase decisions, waiting till the outlook becomes clear on where mortgage rates are going,” he added.
Donnell continued: “Interestingly, the number of cash buyers in the market is actually going to be flat on last year, so the real squeeze, as you’d expect, has been seen but in those that need finance to move.
“There could be some upside to that, but a lot depends on how money markets and financial markets see the base rate developing and how that impacts the cost of finance that underpins mortgages.”
‘Real squeeze on demand’ is in high-value housing markets
Donnell said that the rise in mortgage rates had “supressed buyer demand for property after three really strong years over the pandemic”.
He noted that while demand had fallen it was now in line with levels seen in 2017 to 2019, which he said was more “normal”.
“I think where housing is more affordable demand is holding up better and the real squeeze on demand is in those high-value housing markets.”
Donnell continued that house prices haven’t fallen as much as expected and there “hasn’t been a big overvaluation”.
However, he said that in 80 per cent of markets across the UK, when comparing house price inflation and the average price of homes in 122 postcode areas, are registering year-on-year falls in house prices, although there was a range.
“There are still parts of the market where housing is relatively affordable and house price growth has slowed but it hasn’t moved into negative territory yet. The big price falls are being seen in commuter towns across the South East of England, this is where prices were going up the most over the pandemic and those higher house prices are putting more downward pressure on buying power and affordability,” Donnell explained
He said in London, where house prices tend to be high, pricing was not accelerating downwards. House prices in the area have “underperformed in the last six or seven years, so there is some relative value for money there”.
“That’s why we’re not seeing a big downward pressure on prices and we probably think this pattern is going to continue over most of 2024,” Donnell added.
Lenders ‘competing most’ on sub-75 per cent LTV segment
Donnell said that data from Hometrack showed that nine in 10 outstanding mortgages have got an LTV of less than 75 per cent, which explained why lenders were “competing the most”, which he said was especially the case for product transfers.
He added that increased competition for product transfers had lowered volumes in the remortgage market, which he also attributed to people not having the appetite to borrow more when they deal was up for renewal.
Donnell said that banks were looking to do “automated lending”, and integrate “better use of data and processes” in the sub-75 per cent LTV segment.
“I really see the lending market breaking down into this sub-75 LTV market, with a focus on process efficiency, automation, automated valuation models and then with the purchase and the higher risk remortgage market over 75 LTV where higher mortgage rates create more pressure,” he noted.
First-time buyers and upsizers key areas for brokers
Donnell said that first-time buyers and upsizers were two important segments to consider for brokers.
He pointed to a survey by Houseful which showed 16 per cent of the population want to buy or move home in the next two years, and 40 per cent of people who do want to buy in the next two years being first-time buyers.
On the seller side, figures showed that 45 per cent of people who are selling want to move to a bigger home.
Donnell explained: “They’re going to be thinking twice, they will look at mortgage rates, whether they need to move further afield. Quite a lot of people looking to move out of where they live to a different area [do so] often to get better value for money in the face of higher borrowing costs.
“I think a lot of these upsizers are looking for certain features in property where they know they’ve got to pay more money, they know their mortgage payments, they’re going to be more demanding of the type of property they want to buy. So, there’s still demand to move and sales are holding up but buyers are just becoming more choosey.”