Who have been the winners and losers for housing in 2023?

By Kevin Shaw, National Sales, Managing Director, Leaders Romans Group

This year has seen an ongoing cost-of-living crisis, fluctuating mortgage rates, rising rents, and the threat of falling property prices.

Although average prices rose very well through the pandemic, they’re starting to drop back in many areas. According to Zoopla’s latest index, in September, annual house price inflation dropped to -0.5%, with demand 33% lower than a year ago and an average discount to asking prices of 4.2%. House price falls are greatest in southern England, where high mortgage interest rates have had a bigger impact.

Meanwhile, Zoopla’s data shows that average annual rental inflation (for new lets) is running at 10.5% for the UK as a whole. In England, it ranges from 13.1% in Manchester and 12.4% in London, to 7.8% in the South West. Looking at ONS figures, which include existing tenancies, average rents rose by 5.5% for the UK as a whole in the 12 months to August, with rents in England up by 5.4% over the year.

This year’s winners

• Cash buyers. With prices having fallen slightly and less competition in the market, cash buyers can secure a bargain – especially those who have been able to negotiate a further discount with motivated sellers.
• Those moving from houses to flats. Houses have seen double the level of price inflation of flats over the past three years, according to Nationwide – 23.8% for detached homes, versus 11.6% for flats – so those making that move could have benefitted from much better value for money in terms of accommodation size.
• Those trading up. Although sellers may have had to accept a slightly lower offer for their home, if they were able to secure the same percentage discount when buying a more expensive property, they could have effectively saved money.
• Landlords who own their properties outright. Landlords who haven’t had to worry about rising mortgage costs, particularly those who have had a change in tenancy this year, should have benefitted from a good increase in rental income. However, those who haven’t been able to raise rents in line with inflation could have taken a ‘real terms’ cut in profits.
• HMO tenants. For those who pay an all-inclusive room rent, their landlord is likely to have had to shoulder most of the burden of rising energy costs. And because supply and demand is more evenly balanced in the HMO market, tenants renting rooms haven’t seen the same level of rent increase as those renting whole properties.

This year’s losers

• First-time buyers. Following 14 consecutive base rate rises, when mortgage rates hit 6-7% this summer, FTBs started to feel the pinch, and many found they could no longer afford to buy – which was especially disappointing for those who had been house hunting optimistically in the first half of the year. However, there is light at the end of the tunnel, with mortgage rates already falling below 5% for those with low loan to values.
• Those whose fixed-rate mortgage deals have come to an end. Just two years ago, average two-year fixed mortgages were just 1.2% and average five-year fixed rates were less than 1.3%. Current average fixed rates, as at 3^rd October, are:

2-year fixed         5-year fixed

95% LTV               6.42%                   5.86%

85% LTV               6.13%                   5.58%

75% LTV               5.79%                   5.31%

That means some borrowers may have seen their mortgage payment increase four or even five-fold! Although a number of these people may have felt they had to sell, those who have benefitted from good growth in the value of their home may have been able to remortgage at a lower LTV, which should have given them access to much better rates.

For those really struggling to pay their mortgage, there is Government help and the threat of repossession is nowhere near as great as in the past, thankfully. Many lenders have signed up to the Government’s Mortgage Charter, which is committed to helping people stay in their home, for instance by:

• Switching to interest-only payments for six months
• Extending the mortgage term to reduce monthly payments
• Allowing customers to lock in new fixed-rate deals up to six months before their current deal expires

• Tenants – especially those looking for a new home. Rent is now at an average of 28.4% of earnings – that’s the highest in a decade, but prices are continuing to be forced up by the lack of supply and strong demand, with fewer tenants moving because they know that they’ll have to pay a higher rent. And those on benefits are finding affordability particularly tough, as their LHA is capped.
• HMO landlords. As utility costs have spiralled, some HMO landlords who let rooms on an all-inclusive basis may have seen a cut in their profits.
• Landlords that are highly geared. Some landlords choose to have a high LTV mortgage so that they benefit from better returns on their invested capital when property values rise. But those that hadn’t forecast or budgeted for interest rates rising as far they have, are likely to have been surprised by the rises. Some may have been forced to sell or subsidise their investment each month until rates come down again.

The positive news for everyone is that inflation fell to 4.6% in October and finally seems to be coming back under control. Analysts are forecasting the base rate will be on hold at its current 5.25% for the next year, then start dropping back, reaching 3% by the end of 2025 (Source: Capital Economics). That means the cost of living should become more affordable and high mortgage interest rates are a short-term issue that most people should be able to ride out.