Havoc in the Housing Market
The housing market seems to be generating conflicting signals which makes it very difficult to understand what is happening for anyone who is not an expert, but simply wants to buy or sell a property.
On one hand the papers are reporting that record prices are being reached particularly in some of the areas with tougher Covid-19 prevention restrictions.
They say demand is so great that it has been reported that up to 200,000 people might miss out on the stamp duty cut due to delays in the system, meaning people are not able to get their transaction through before the stamp duty holiday ends on 31st March 2021.
On the other hand, buyers have the smallest choice of mortgage deals since 2010. According to Moneyfacts there are just over 2,200 deals available now, down from nearly 5,000 available in October last year.
This can reduce the options for anyone who is self-employed, a contract worker or any other income bracket that doesn’t fit into the ‘vanilla’ mortgage offer. Even if homebuyers can find a mortgage deal, house prices agreed between buyers and sellers are being undercut by surveyors who are valuing the properties at much less – and it is this valuation that the mortgage company uses for its calculations.
Undoubtedly demand is being pumped up by the stamp duty holiday, and by people’s understandable desire to relocated to bigger and less urban properties as a result of the ‘work from home’ to combat coronavirus instructions from the government.
Where the restrictions are most stringent the demand seems to be highest, particularly if there is a nearby scenic area to move to, such as many parts of South Wales. Our feeling is that these are relatively short term factors, and probably will not last far beyond the stamp duty holiday and the gloomy economic predictions for next year.
In the longer term, it feels like the lenders are ‘pulling up the drawbridge’, to reducing the mortgage deals available to ensure that their own risk is limited in the case of a downturn.
The practice of “Down Valuing” property: where the surveyors are valuing property below the agreed purchase price, means that lenders will demand a larger deposit to decrease their risk. Essentially they believe that the price agreed between the buyer and seller is more than the true value of the property so this difference is not secured on the property. This suggests that most lenders think the current prices are in ‘bubble’ territory.
Conflicting signals like this have not been seen since the last financial crisis. Many people are moving for non-financial reasons, to have a better living space given our changing working environments however the long-term outlook looks potentially turbulent.
