House prices will likely fall, chief executive says, but he still sees a healthy market ahead
Mortgage and housing markets have been volatile over the last 12 months or so, but from some points of view, the market is simply returning to “normal” after 13 years of historically low interest rates.
“Some may say we have now returned to a ‘normal’ market,” said Leon Diamond (pictured), chief executive at LiveMore Capital.
There was a kneejerk reaction in financial markets, at the end of September when Liz Truss and Kwasi Kwarteng announced the notorious mini budget, but Diamond said he is now seeing a steadier ship and the markets have priced in forward expectations.
Mortgage rates outlook: steady on
“We are expecting a gradual slowdown in the rate of inflation, but the Bank of England will be keeping a close eye on it, and base rate rises are still on the cards,” he added.
Diamond said that even if the Bank of England base rate goes up by another 0.5% to 1% this year, he believes mortgage rates should remain fairly steady.
However, he said that this assumes there is no major disruptive upheaval in the world economy, such as an escalation of the Russian war in Ukraine.
Diamond said, inevitably, the high cost-of-living and recession is having an impact on the lives of many people.
“We are now seeing a downturn in housing transactions and mortgage approvals while the phenomenal growth in house prices of the past two years is subsiding,” he said.
The stamp duty holiday introduced during the pandemic created a rush to buy, with the inevitable rise in house prices as demand outstripped supply. Diamond said some people paid over the odds and now live in overpriced houses, so if they want to sell in the near future it could well be at a loss.
“People will begin to take views on interest rates with their mortgages either moving to shorter duration variable rates like two-year fixes; and others will look to lock in longer-term rates, such as a fixed for life mortgage,” he said.
House prices set to fall further
Historically, mortgage rates are still very low, so Diamond believes this will appeal to people who want certainty as other customer items increase.
All the house price indices are indicating a fall in house prices of between 5% and 30%; Diamond said he is at the middle of this scale and does not think prices will go down any lower than 10% to 15%, if that.
He added that, of course, it will vary within different regions with some parts of the country faring better than others.
“Nevertheless, I do believe there will be a relatively healthy housing market in 2023 as people still want and need to move homes,” Diamond said. “Aspiring first-time buyers will like the fall in house prices and, for those lucky enough, the Bank of Mum and Dad is still very much open.”
Housebuilding policy: more consistency needed
Housebuilding is at the heart of providing more homes, so Diamond believes the government should make it easier for SME housing developers to access land and planning permission.
“There are lots of smaller pockets of land that are more suitable for SME developers than the larger house builders, but there is often too much red tape around them,” he said.
Diamond added that the government could also support the housing market by stopping the merry-go-round of housing ministers, he pointed out that there were five in 2022.
“We need continuity, so the housing minister role should be for a few years – not a few months or weeks,” Diamond concluded.
Do you believe market conditions have now returned to ‘normal’ following an exceptional decade? Let us know in the comments below.
