Jonathan Rolande: Is this the week that everything changed?

The National Association of Property Buyers’ Jonathan Rolande gives his take on a manic week for the property market.

I dearly hope I am wrong, but the week of 12 June 2023 feels like this the date we look back on as the moment the market began its full-on retraction.

Until now, we have seen the market battered by one thing after another but still, somehow, against the odds continue its rise and rise.

The current mortgage market mess where products are being withdrawn and repriced higher is a disaster for this fragile market, coming as it does before The Bank of England has even confirmed a rate rise. So far the financial penalties are small – twenty pounds a month or so typically. But the effect on confidence will make many waver and think “is now the time to buy?” 

Factor in more stock from landlords getting out, demand for buy-to-let off a cliff and we have perhaps, a perfect storm brewing.

Whilst there is room for optimism with inflation coming down and the risk of mass repossessions low thanks to sensible lending levels, we should also be quietly preparing for the worst.

Aspiring home buyers, landlords and owners are set to be hit with another round of interest rate hikes just as many thought that the worst was behind us.

Stubborn inflation is now at nearly nine per cent - a long way from the two per cent target - and may lead to a Bank of England rate increase later this month and mortgage lenders have started preparing for it.

Many mortgage deals have been pulled and replaced with higher-cost offerings.

A £250,000 mortgage is currently some £400 more expensive than it would have been a year ago.

Although the headline drop in prices is so far only around 3 per cent the reality is much worse for sellers. Those that have a pressing reason to sell – divorce, probate, financial problems – may struggle and have to reduce further.

Meanwhile it is difficult to see what might happen to stop the decline of UK house prices. With average prices failing to keep up with general inflation, it can be argued that property has already lost a substantial amount of value. It seems likely that the coming months will see further drops 

in prices achieved, quite possibly wiping off a few percent or so by the end of the year.

The recent prediction by Moody's Analytics of a 10% drop over two years may well be correct. The worrying thing here isn’t just the fact that homes will be worth less than many have paid, it is also the length of time things are predicted to be difficult.

Many homeowners are already struggling to meet their commitments each month, often relying on savings to get them through. Once these are depleted, we may well begin to see the spectre of mortgage arrears and repossession once again.

Another big issue right now is that house building is slumping too. 

A softening in demand that has rocked housebuilders is just what The Bank of England must have hoped for – proof that their objective to bring down inflation is at last beginning to work. 

Reservations, sales, construction numbers, share prices and sale prices – all are in negative territory for most housebuilders.

This month Bellway has announced reservations are down 25% year on year. This does not bode well for the property market in general or the UK as a whole.

The natural instincts of housebuilders will soon take over – why build if you can’t sell? To keep profit levels up, they will cherry-pick sites to develop, leaving others banked for better times in the future. As a nation, even in recent boom times, we have struggled to build more than 50% of the Government’s target of 300,000 new homes a year.

A figure seemingly so ambitious it has been abandoned. If we cannot rely on a busy sales market to encourage the building of new homes it is likely the numbers built will dwindle, further fuelling the misery of many who cannot afford or find a decent, safe home to live in. If this trend continues we are about to see the shortage of homes to rent or buy get a lot more severe. 

Will this week be the week everything changed? The days and weeks ahead will tell us.