Mortgages are taking up a considerable number of column inches as the Bank of England raised the base rate of interest again in June. Despite the headlines, consumer confidence is proving resilient as demand continues to outpace supply and sensibly priced properties continue to attract interest and offers.
Less than half (47%) of all owner-occupied households in England and Wales are owned with a mortgage (Census 2021). However the impact of the rise in mortgage rates for the seven million households who do is making daily news. The majority of mortgages are on fixed-rate deals, with an estimated 15% anticipated to end this year (Zoopla/Hometrack). At 50,524, the number of mortgage approvals in May for new home purchases was 15% lower than the longer-term (2010-2019) average. This is, however, a considerable improvement compared to the start of the year; in January mortgage approvals were some 34% lower. This is indicative of the increased acceptance of the new interest rate environment (Dataloft, Bank of England).
Following a meeting between the Treasury and major lenders, details of a Mortgage Charter to support residential borrowers have been released which has the support of 85% of the industry. Customers who are up to date with payments will be able to switch to interest-only payments for six months or extend their mortgage term with the option to revert to the original term within six months. Customers reaching the end of a fixed-rate deal will be able to lock in a deal up to six months before the date but have the ability to change this for an improved deal until their new term starts. Other than in exceptional circumstances, repossessions will not take place less than a year from the first missed payment.
Consumer confidence in May improved for the fifth month in succession and rose to its highest level in 17 months (GfK), consumers increasingly confident as to the state of their
own personal finances. Buyer demand for property remains steady at 6% higher in the four weeks to mid-June than in 2019 (Rightmove). However it is clear that rising costs will impact buying power. 47% of agents state that the biggest impact of mortgage market volatility on buyer purchasing habits is a lowering of budgets (Dataloft Inform Poll of Subscribers). Research by Zoopla indicates that moving from a mortgage rate of 4% to one of 6%, on an average-priced property, will deliver a hit to buying power in the region of 19%¹. Pricing for the market is paramount. Zoopla notes the current average price reduction on a property is 3.8%. However, more than two in five sellers in June accepted a discount of more than 5%. Research by Rightmove indicates that listings which have been price reduced take more than double the time and are more than 10% less likely to sell, subject to contract (SSTC) than their non-reduced counterparts.
Month-on-month prices are remaining stable across the property market, with the annual rate of price growth ranging from 3.5% to -3.5% depending on the indices and how they are calculated. Due no doubt in part to less reliance on the mortgage market, prime market annual price growth is proving more resilient, currently at 7.7%, with annual growth in positive territory across all regions of England and Wales. The threshold for a prime market property is now at least half a million pounds in all regions except for the North East. The average price for all types of prime market property is in excess of £1 million, with the exception of semi-detached houses.
¹Assuming a fixed loan of £195,000 for an average priced home (£260,000), purchased with 25% deposit and repayment term of 28 years.£460,274 £1,240,000 £1,785,648
