Blog Post No. 188
UK Housing Market Forecast: 4% Price Drop Predicted, Reuters Poll & more – 5th Sept Property Bulletin
British Housing Prices Expected to Drop by 4% in 2023 Due to Rising Borrowing Costs, Reuters Poll
London, Sept 1, 2023 – A recent Reuters poll reveals that British home prices are set to fall by 4% this year, a steeper decline than previously thought, as high interest rates and living expenses deter potential buyers despite a supply shortage.
During the COVID-19 pandemic, average home prices surged over 20% due to low interest rates and a demand for more space, but they are now expected to drop by around 5% from peak to trough.
The Bank of England’s aggressive tightening policy, with borrowing costs rising by 515 basis points in under two years from 0.10%, has made mortgages more expensive.
The survey of 18 market experts from Aug 14 to 30 suggests average home prices will decline by 4% in 2023, slightly worse than the 3% predicted in June but not as dire as feared earlier. The most pessimistic forecast is a 10% fall, despite an expected 7.5% rise in consumer prices this year.
Prices are predicted to stabilize in 2024 and increase slightly by just over 3% the following year, similar to previous expectations.
Michael McGill of CBRE said, “Forward-looking indicators show declining buyer demand and negative price expectations due to higher mortgage costs, impacting affordability and housing prices. We anticipate a recovery from 2024, driven by an improving economy.”
Recent Bank of England data shows a housing market slowdown, with mortgage approvals dropping more than expected in July, and Zoopla reports a potential 21% drop in home purchases in 2023, the lowest since 2012.
In London, prices are expected to decline by 5% this year but rise faster than the national average in the following two years, with increases of 2% and 5%, though performance varies across boroughs.
Rising rental costs pose challenges for those unable or unwilling to buy. All 13 respondents in an additional survey expect average rents to rise for the remainder of the year, with nine anticipating significant increases. Twelve of 14 participants express concerns that rental affordability will worsen over the coming year.
According to the Office for National Statistics, private rental prices in Britain rose by 5.3% over the 12 months to July.
In 2023, siblings are increasingly becoming a significant source of financial support for first-time homebuyers in Great Britain. Data from Hamptons estate agents and Skipton Building Society reveals that siblings now contribute 11% of all family aid for first-time buyer deposits, more than double the percentage recorded five years ago (5%).
While parents remain the most common source of financial assistance, their share has gradually declined from 80% in 2018 to 72% in 2023.
The median deposit boost provided by siblings is £10,250, which is £5,000 less than the average contribution from parents. Overall, family contributions to first-time buyers have an average value of £14,220 this year, representing a 2% increase from the previous year.
The impact of family support includes enabling buyers to make larger deposits, which can lead to more favorable mortgage rates and the ability to purchase more expensive homes. Additionally, first-time buyers with family support tend to buy homes at a younger age, with an average age of 31.3 compared to 32.5 for those without such support.
Family support varies by region, with Yorkshire & Humber having the highest proportion of first-time buyers receiving aid (40%), while Scotland had the lowest (27%). London saw the largest financial boost from family members, averaging an additional £34,270.
For those unable to receive family help, there are various buyer support schemes available, including lifetime Isas, the First Homes initiative, Right to Buy, 100% mortgages, and shared ownership, as well as advice on saving for a deposit and applying for a mortgage. Additionally, individuals should consider alternatives to gifting money, such as joint mortgages or guarantor mortgages, which have their own financial implications and should be carefully evaluated with expert advice.
Mukesh Ambani, Asia’s wealthiest individual, has stirred controversy by acquiring and renovating Stoke Park, a historic UK country estate, after purchasing its lease for £57 million in 2021.
The estate, known for its James Bond film appearance and renowned golf and country club, abruptly expelled its affluent members and closed for renovations under Ambani’s ownership. This has led to tensions with the local council over unauthorized changes and compliance with leasehold terms.
Stoke Park’s new owners plan to transform the estate with a “7-star” hotel, new clubhouse, and revamped golf course, aiming to attract elite golf players. While the estate has remained closed for two years, there is lingering uncertainty surrounding the renovation plans, as a comprehensive planning application has yet to be filed.
Locals are concerned about the loss of a beloved community asset, as Stoke Park has historically served as a hotel, clubhouse, and wedding venue. Despite Stoke Park’s assurances of reopening and denial of residential use by the Ambani family, the situation remains contentious.
Reliance Industries, Ambani’s conglomerate, issued a video showing the Ambani family celebrating Indian independence day at Stoke Park in 2022, indicating their continued use of the estate. Signs of activity are also evident in Stoke Park’s accounts, with revenues increasing significantly due to sales to Reliance.
While some local officials support Reliance’s plans for renovation and investment, concerns exist regarding the Ambanis’ use of the mansion, which is subject to lease restrictions. The council has ordered some alterations to the estate to be reversed.
Former members of Stoke Park express nostalgia for the club and its role in their lives, while locals await concrete action regarding the estate’s future. Despite assurances of reopening, questions remain about the Ambanis’ plans for Stoke Park.
HSBC Launches 40-Year Mortgages to Ease Monthly Payments. HSBC is set to introduce a 40-year mortgage, targeting customers who may find it challenging to meet shorter-term mortgage payments.
The extended mortgage term will be available for both residential and buy-to-let properties. Initially, it will be accessible through brokers and will be offered directly by HSBC starting on September 13.
Andrew Matson, Head of Mortgages at HSBC UK, explained that this initiative aims to make homeownership more accessible: “We know that home ownership is a key life ambition for many people, but affordability can be an issue. We are delighted to introduce our first-ever 40-year mortgage term to our customers. This move underscores our commitment to supporting aspiring homeowners in their journey onto the housing ladder.”
As interest rates rise, “marathon mortgages” are gaining popularity among prospective buyers looking for more affordable alternatives to traditional 20- or 25-year deals and a way to escape the rental cycle.
While opting for a longer mortgage term leads to lower monthly payments, the total amount paid over the loan’s duration ends up being considerably higher due to the compounding effects of interest over time.
Although smaller lenders have offered 40-year mortgages in the past, HSBC’s entry into this market as a member of the “big six” marks a notable shift toward longer-term mortgages becoming more mainstream.
Lewis Shaw, Owner and Mortgage Expert at Shaw Financial Services, noted that HSBC is aligning itself with market trends by offering extended mortgage terms. He emphasized that “it shows that there is an appetite for longer mortgages after the cost of living crisis, rate hikes, and wage stagnation wrought a hammer blow to first-time buyers’ affordability.”
Elliott Benson, owner and mortgage broker at Sett Mortgages, highlighted that HSBC tends to be among the more affordable lenders for first-time buyers, making this deal particularly attractive for those seeking longer mortgage terms.
The proportion of first-time buyers opting for 35-year-plus mortgages in 2023 has risen to 19%, a significant increase compared to just 2% in 2005 when UK Finance began keeping records.
Buy-to-let landlords can achieve close to double-digit returns in certain areas of the UK, where buy-to-let yields are on the rise, according to data from property portal Zoopla.
Yields of eight percent or higher can be found in areas around Glasgow, Scotland, including West Dunbartonshire, Renfrewshire, East Ayrshire, and North Lanarkshire. Renfrewshire has witnessed a 13% increase in yields in the past year, while West Dunbartonshire saw a 7% rise.
Even in areas with lower yields, such as the affluent London boroughs of Kensington and Chelsea, Richmond upon Thames, and Westminster, where yields are under 4.5%, there have been notable increases of nine, 11, and 13% respectively over the past year.
Despite challenges faced by buy-to-let landlords, including rising mortgage rates and regulatory changes, there are still bright spots in the market. The scarcity of rental properties resulting from landlords selling up has led to increased yields for those who remain in the market. However, it’s important to note that making a profit from buy-to-let depends on both rental income and potential capital gains from property value appreciation. Investors should carefully consider their strategy and location to find the right balance between yield and capital growth.