How confident is the property market?

Prospective buyers likely to 'wait and see' amid economic uncertainty

How confident is the property market?

Changes in the mortgage market will likely have an impact on consumer confidence in the housing market, an industry expert has warned. 

Borrowers will inevitably step back to reconsider their approach and take stock, suggested David Hollingworth, associate director of L&C Mortgages. Many would be waiting for a potential property price drop in the near future, he said.

“Those that are already in the process of securing a property may be more likely to continue given that they would have little chance of securing mortgage rates on par with their current offer now that rates have escalated,” said Hollingsworth (pictured). 

“Those that do not need to move are much more likely to feel that a wait and see approach would be more appropriate to understand how things pan out before committing themselves to a house move.”

Heightened volatility

Hollingworth explained that the recent volatility in the mortgage market was heightened by the unfavourable reception to the mini budget, that saw rates rising.

He noted that inflationary pressure makes further increases likely, but the undoing of the changes within the mini budget could bring some stability to the market and improve the funding costs for lenders.

Read more: Housing market not immune to impact of economic malaise

“I expect it would take time for that to feed through, but it could help slow the increases that have come at such pace and fanned the anxiety of households,” he said.

To what extent that anxiety dampens the level of demand in the market and how many forced sellers put property on the market remains uncertain. But Hollingsworth suggested both factors could contribute significantly to a reduction in a fall in property prices. This, too, might potentially further dent confidence.

“Much will depend on the stability that the new chancellor can bring, but more stability may at least help consumers understand the outlook better, which could in turn stave off a crash in prices,” he said.

Most affected

According to Hollingworth, first-time buyers are most likely to steer clear of the market, for now. He noted that they may have to recalibrate their search altogether as they try to understand the ramifications of mortgage payments and therefore their affordability. 

“Some may be hoping that there could be positive news if prices were to drop back,” he said. “However, the retained improvement to stamp duty relief is highly unlikely to offset the concern that higher interest rates and spiking living costs brings.”

Meanwhile, Nick Morrey, technical director of mortgage broker Coreco outlined that more support was particularly needed for first-time buyers during this period of uncertainty.

“Helping first-time buyers with more schemes like Help to Buy and organising other schemes that do not require the property to be new-build could certainly lessen the impact of a housing crash,” he said.

Crash or correction

Morrey explained that he did not believe there would be a property price crash unless unemployment rocketed, although he noted that was possible. If house prices were to fall, he said, it would be considered more of a correction, given the increases in the last three years.

“The reason I do not expect the larger predictions to actually happen is that if prices are reported to be falling as much as 5% then people will likely stop selling and supply will reduce even further, which will likely support prices overall,” he stated. “What is more likely is transaction levels reducing as consumer uncertainty prevents big ticket financial decisions.”

Read more: UK mortgage lending to be lowest in over a decade - EY

Morrey predicted a fall of between 5% and 10%, if the housing market was to decline, rather than the 15% to 20% that he noted some experts have been suggesting.

He also explained that if the housing bubble was to burst, then a bounce back usually took two to three years from the start of a fall to a recovery being well underway.