Nationwide House Price Index September 22

Although there were rate increases at the beginning of September, rates were still affordable for most customers so it was business as usual. It is no longer business as usual. In fact, in the property market, it is officially now business as unusual. Many first-time buyers will now put buying a property on hold, as the level of interest rates will push them out of affordability, especially with household bills due to increase, too in October. They are contemplating whether now really is the right time to buy. There is extraordinary uncertainty among the UK's leading lenders and a lack of confidence across the board after the mini-Budget last week. With the Bank of England effectively bailing out the government for their ‘radical’ budget on Wednesday, it further demonstrates the lack of economic knowledge that Liz Truss and Kwasi Kwarteng have. Interest rates in the mortgage world are now back to pre-Global Financial Crisis levels. Expect the Bank of England to continue to raise the base rate over the coming months and in 2023, reaching their peak around Q2/Q3. I expect house prices to drop over the coming year, with a much needed market correction. We’re still living in a country where house prices have increased at high levels since the stamp duty holiday was introduced in 2020. Demand will naturally decrease as only the customers who can afford mortgage payments at 6% interest rates will be able to proceed.

September 2022 could turn out to be a significant turning point in the housing market cycle and it's hard to now envisage anything other than a significant downturn in prices. Early indications are that, with confidence severely dented by the chaotic events of the past week, many people will now choose to sit on their hands for the next six months or so and wait for things to settle down. There is no question that for some would-be buyers, in particular first time buyers, the rise in the cost of the mortgages that remain, along with the associated affordability challenges, will prove too much of a hurdle. For those, however, with reasonable deposits and strong incomes, a likely drop in house prices and fall in competition from other buyers could in fact be the opportunity they have been waiting for. Those opting to view from the sidelines will also feel the pain, as the cost of renting is also likely to surge as demand in this sector will continue to far outstrip supply.

The events of the past week have fundamentally changed the mortgage market. I think we're at the point where borrowers have started to realise house prices are likely to fall. The new norm over the coming weeks will be mortgage rates well over 5%. Possibly 6%-8% by the new year. If no one can afford to buy at current prices, a lack of housing stock won't make a jot of difference, despite what estate agents say to the contrary.

People who were considering moving just a fortnight or so ago are now battening down the hatches while storm Truss unfolds. A growing number of our clients have come back to us after months of searching for a home and are putting their move on hold, in shock at how quickly rates have gone up. Their ideal home has now passed beyond a budget they feel comfortable with. What we are seeing is more and more clients approaching us about the best way to protect their finances by potentially securing a new mortgage now before rates rise further. The shift in confidence has been dramatic over the past week. I've never seen anything like it.

The market rout sent shockwaves to investors and buyers as they retreated in anticipation of fiscal policies that are likely to further dampen the current economy. This reverses any anticipation of higher transaction activity in October that would have been influenced by the increase in stamp duty threshold. We’re still expecting property prices to rise by 3% to 4% by the end of year if current conditions hold. But what would better assuage the market, in our opinion, is for Kwarteng and the BOE to announce plans that would prevent a clash of fiscal and monetary policies and a clear statement on how tax cuts can be better funded.