A week of turmoil for the property industry

Following the announcement last week of the immediate cutting of Stamp Duty Land Tax, alongside a host of other tax cutting measures announced by Chancellor Kwasi Kwarteng, there has been significant conjecture about the state of the economy. 

The value of the Pound against the US Dollar hit a record low; the interest rate rise has seen lenders tighten up their mortgage products with one report indicating nearly 1000 products were removed by lenders overnight; the Bank of England announced short term Quantitative Easing to quell the concern; and the International Monetary Fund (IMF) took the unusual step of releasing a statement outlining its concerns at the historic measures.

Property market commentators point to data which indicates the market remains resilient with strong demand and continued short supply. Propertymark, the membership body for Estate Agents, this week released its August Housing Insight Report which identified

“The number of available properties for sale per member branch has risen by 47 per cent since the depths of winter last year but demand has risen by 79 per cent over the same period.”

“The number of new buyers registering per member branch in August rose slightly over July potentially indicating the start of a pickup for the autumn season. “

CEO Of Propertymark Nathan Emmerson added

“The number of people wanting to buy is still good, and the number of properties available to buy is recovering from the mad dash we had before. Buyers and sellers alike are aware of cost-of-living increases and interest rate rises, there are those of a generation who will remember much higher rates but there is a new wave of buyers who won’t have seen these levels before that will become more cautious with their budget. What we have today however, is the ability to be flexible on location due to remote working which has a large impact on price. This new dynamic will help home movers and is a factor that hasn’t previously existed.”

Transaction data in August was similarly optimistic, with a provisional non-seasonally adjusted estimate of 114,440 transactions; 4.4% up on July, and 9.7% higher than August 2021.

The “fly in the ointment” is the interest rate rise. Despite the stamp duty increase, which according to Zoopla take 43% of homes out of stamp duty altogether and should in theory create more affordability at first time buyer and “second stepper” level, rising interest rates will see mortgage affordability drop.

In its most recent House Price Index the property portal suggested that rising mortgage rates will impact household buying power by 28% if rates reach 5% by the end of the year (assuming buyers try to keep the same monthly payments).

Rightmove, who in the hour following the SDLT cut reported a 10% increase in traffic to its site, have said the number of sales agreed on Tuesday 27th September was the highest number in one day since early August but highlights the affordability issue saying that prices remain 15% higher than they were two years ago (just a few thousand pounds shy of a price record) and 3 beds and 4 beds, excluding 4 bed detached homes (so called “second steppers”) are at a record national asking price of £340,513.

“The number of attractive mortgage deals tumbling this week is a bitter pill to swallow for those who want to move and those with fixed terms due to end, and it will impact buyers’ budgets, especially those who were already stretching themselves. We’re monitoring activity carefully in real-time, and for now what we’re seeing is that the housing market’s very much still moving.”

Says Tim Bannister Director Of Data Services at Rightmove.

 “Over the past month activity has shown that the housing market has been surprisingly resilient against headwinds of rising rates and so it looks like for those who can move, they’re going ahead for now. We’ve seen demand softening in the past few months, but buyer demand is still 20% higher than the pre-pandemic five-year average, house prices are 15% higher than they were two years ago, and the overall number of homes going through conveyancing is 40% higher than in 2019.”

In a special edition of the Today’s Conveyancer podcast, Managing Director of Convey Law Lloyd Davies described the current situation as adding “stimulus to an already over stimulated market” and described the current economic climate as “confusing”.

“Everyone’s concerned about growth but we’ve not had a chance to grow for 2 years. We’ve had the pandemic and then we’ve had the war in Ukraine. As a result of the war we’ve had this huge inflation issues with prices. The economy hasn’t had a chance to grow. Given enough time it will grow on its own and market forces are there to drive it forward.

“But the hoodoo is the interest rate rise. One the one hand you have the SDLT cut, but then you have the interest rate rise coming in. That’s going to have a significant impact on the housing market and it seems to be contradictory. By raising interest rates you’re increasing household inflation, which impacts wider buying power. So we’re in a situation where on the one hand the government is giving with the SLDT and tax cuts, but on the other it’s being taken away. “

Listen in to Lloyd’s thoughts in full here: https://todaysconveyancer.co.uk/podcast-special-reaction-sdlt-cut/

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