Despite the recent moderate fall in house prices, mortgage brokers have said the crash that was predicted by some at the end of last year is now unlikely.
Earlier this week, Halifax’s house price index showed house prices fell by 1 per cent in May of this year compared to last year.
This represented the first annual decline in house prices since December 2012.
However, six months into the year, the latest figures still show no sign of the drastic fall that some analysts predicted last year, and experts now say such a drop is unlikely.
Back in the final months of 2022, some analysts were predicting falls of anywhere between 5 and 30 per cent but most said a 10 per cent drop in prices was the likeliest outcome.
Since then, the market has remained robust despite ongoing cost-of-living pressures that have impacted mortgage borrowers’ affordability.
The picture at the coal face since the new year has been much rosier. — Rhys Schofield, Peak Mortgages and ProtectionIn April, property transactions fell by 29 per cent on the previous month, their lowest level since October 2021 with experts commenting at the time that the market was still struggling as a result of wider economic difficulties.
More recently, the market has again had to deal with rapid product withdrawals as lenders reckoned with worse than expected inflation.
However, despite these challenges brokers have said this week that a house price correction remains more likely than a crash.
MPowered Mortgages chief executive, Stuart Cheetham said while market transactional activity is down by a “huge” amount, a crash will not happen because housing demand is still currently outpacing housing supply.
“We don't believe a crash is on the cards unless we see unemployment numbers go up and more bad news on inflation,” Cheetham said.
“Market transactional activity is down 58 per cent, which is huge, but unless we see forced sellers, namely people in difficulty because of unemployment or prolonged high rates, the limited supply of houses on the market will prevent a crash.
Given rates are expected to remain high for the foreseeable future, we could see house prices continue to fall, meaning housing could become more affordable,” he added.
Likewise, speaking on the FTAdviser podcast released earlier today, Quilter’s mortgage expert Karen Noye said the shortage of houses nationally and the current low unemployment rate are factors that have so far kept house prices stable this year.
Others in the sector pointed out that housing stats used to measure the health of the market often lag behind what is currently happening and so are not always fully reflective of the currently market conditions.
Peak Mortgages and Protection director, Rhys Schofield said: “Housing transactions on average take five to six months to complete so the danger of reporting completion stats is that they're off the pace.
“They now just tell us what we all knew anyway, in other words that the ‘mini’ Budget ground the market to an earlier than normal pre-Christmas halt.”
“The picture at the coal face since the new year has been much rosier. Estate agents have been busy, houses are selling and all-in-all it's pretty steady. Any doom-mongers waiting for a crash will be disappointed,” he added.
Lender behaviour
Other brokers pointed out that lender behaviour is a good barometer of where house prices are expected to go, and the continued availability of high loan-to-value products indicates that there is confidence prices will remain stable.
EHF Mortgages managing director, Justin Moy said once lenders need more than a 10 per cent deposit, that might be an indication of a crash on the horizon.
“I definitely agree there will be some price reductions, with some areas of the country experiencing more downward pressure than others,” Moy said.
He added: “The low availability of property stock has probably kept prices higher than expected in the short term, but the effect of inflation, mortgage rates and low confidence still needs to show in the figures.”
However, not everyone was as confident that a crash has been escaped.
SelfEmployedMortgageHub.com founder Graham Cox said one is “inevitable”.
“With further base rate rises expected, even Halifax is reporting that the 'downward pressure' on house prices is set to continue. I think we'll see nominal house prices fall 15 to 20 per cent over the next two years, with property values starting to fall more rapidly over the second half of 2023,” Cox said.
“The reason UK productivity and economic growth have been so poor over the past decade or more is that an ever-increasing percentage of people's income is being spent on mortgages and rent.
“Funding has been diverted away from business investment and towards property asset speculation instead, the primary cause of our economic malaise,” he added.
Product withdrawals continue
Elsewhere in the mortgage market, product withdrawals have continued this week.
Just yesterday, mortgage intermediaries were left scrambling after HSBC pulled all of its new business mortgage deals due to “significant demand”.
The volatility follows product withdrawals and rate increases from other lenders, including Santaner and TSB.
So far over 1,200 mortgage products - over 10 per cent - have been pulled from the market in the last two weeks.
jane.matthews@ft.com
