Could housing in the UK get any worse?

At the moment it feels like anything you say could be completely inaccurate within moments. Nothing like the uncertainty of the UK to really lift your spirits (and sadly reduce your bank account). Well here it goes. The UK residential market has taken an absolute pounding. Lawrence Bowles summed it up with the title “and you thought last year was mad!” – and that was before the Mini-Budget. The UK residential market has experienced a mixture of highs and lows over the last year and seems that this will continue for the foreseeable future. In fact at the moment home-owners or those wanting to join that ladder have even more to think/worry about than ever before.

If you look back over the last year there has again been double digit house price growth. It’s good news if you are a homeowner, but that capital growth isn’t a cash-inflow, not until you sell the house – and to find a new house is going to cost you! Fueled by stamp duty holidays, the impacts of Covid-19 (yes still!), low mortgage rates (well until now!) and the desire and need for more space. The value of homes continues to grow. In July growth was 15.5%. Great if it’s guaranteed to last. Up until the Mini-Budget there were signs of slowing which now has well and truly hit home. This has been downgraded to 9.5% at the end of September (which is post mini-budget) – so basically house prices have declined in that quarter.

With mortgage rates rising, as a result of rising inflation and the general uncertainty in the market, accessing the market now feels even more out of reach for many. And those in a home owning position are likely to bunker down – especially if currently shielded with a fixed rate mortgage. And to top off the challenges here, just around the corner is the end of the Help-to-Buy scheme, so housebuilders (particularly national ones that rely so much on help-to-buy) will need to think about how to support home ownership – hopefully not through those failed shared equity schemes that happened! Looking at schemes like First Homes, partnering more with other housing providers and even deposit-unlock provides some options.

The impact on the private rented sector is less dramatic, although the impact of interest rates on landlords will surely lead to one thing – higher rents. There is a large amount of supply in the market and thousands of beds coming to market all the time. Build to rent is only a small portion of the market and plenty of space to grow and create a dent in the woes of UK Housing.

UK Housing is being pushed from all angles. Continual erosion of margin through higher costs, increased building standards and climate mitigation (to name just a few) mean that profits could be squeezed. Affordability is already a challenge for so many so that pie is going to struggle to get any bigger. The sector needs certainty. The sector needs support from the Government, and not a new minister every blinking year! Rates are raising, affordability is becoming ever more challenging yet demand for rental is strong and the demand vs supply is aiding rental growth so maybe there is something to consider in parallel with traditional housing.

So where does that leave us. Annual growth is still there but dampening. The longer impact will not be known for a while. Demand is shrinking and depending on where mortgage rates land could continue to fall. So, while supply will no doubt be further reduced by a slowing of housebuilders and less to market. Though unfortunately some assets may come to market depending on individual circumstances with rising mortgage costs. 

And to reiterate the opening sentence, by the time I finished writing this Kwasi Kwarteng was gone. So let’s see where that leaves us now. Certainly MORE uncertainty

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