News

Exactly what the next few years have in store for house prices remains to be seen. But what seems like a foregone conclusion in the eyes of most market watchers is a fairly significant fall in average house prices.

Savills recently predicted a 10% drop in 2023, while Knight Frank has forecast a 10% fall over the next two years. Elsewhere, Credit Suisse and Capital Economics have both projected a fall of between 10% and 15% within the next 12 months.

The consensus, therefore, appears to point to a fairly turbulent year to come for home sellers, at least for those looking to get the best possible prices for their properties. Average house prices are unlikely to get any higher than they are right now, seemingly making now the time to sell before any further declines creep into the mix.

Not only is this exactly what many are doing, but it is becoming commonplace for home sellers to set their sights primarily (if not exclusively) on cash buyers.

Chain-free sales

To hang around and wait for a potential 10% drop in property prices could prove catastrophic for anyone pursuing maximum capital gains. As a result, more home sellers than ever before are demonstrating enthusiasm (if not desperation) where selling their properties quickly is concerned.

A growing contingency of UK sellers is accepting inquiries and offers only from chain-free buyers, who can purchase their homes outright for cash.

The results of a recent survey conducted by mortgage broker MPowered found that as many as two-thirds of UK home sellers are only interested in offers from chain-free buyers. In addition, almost 30% said that they would charge higher prices for their homes if they sold them to standard mortgage-reliant buyers.

What this adds up to is a property market where those who are able to purchase homes outright for cash have a major advantage over competing bidders. Not just in terms of beating them to the punch, but also in their access to exclusive deals and discounts on property prices.

Traditionally, it has been practically impossible for everyday homebuyers to access the benefits afforded exclusively to cash buyers, but as the market for bridging finance continues its expansion, more mainstream buyers than ever before are empowering themselves with cash-buyer capabilities.

Bridging finance for fast property purchases

Escaping property chains and funding fast home purchases has become the number-one use for bridging loans in the UK. With bridging finance, the funds needed to purchase a property for cash can be raised within a few working days. Bridging loans are short-term products issued over terms of 12 months or less and secured against assets of value (typically residential or commercial property).

As mortgage rates continue to head ever-skyward, average bridging loan rates remain close to historic lows. Current deals are averaging just under 0.5% per month, equating to an APR of around 5.6%. But as the vast majority of bridging loans are repaid within a few months, bridging finance can work out exponentially more cost-effectively than any comparable mortgage.

Bridging finance is therefore providing home buyers from all backgrounds with a welcome lifeline—one that enables them to compete with the market’s more established cash buyers. Rather than being denied access to a sizeable chunk of the property market (and paying over the odds), anyone who can qualify for bridging finance can access all the benefits of purchasing homes for cash.

For more information on any of the above or to discuss the potential benefits of bridging finance in more detail, call anytime for an obligation-free consultation.

Things have been moving so fast as of late that it is difficult to believe it was only eight weeks ago that Kwasi Kwarteng devastated the UK economy with his catastrophic mini-budget. Since then, Jeremy Hunt has introduced a broad range of spending cuts and tax hikes with the aim of reversing at least some damage done by his predecessor and championing ‘stability, growth, and public services’.

According to the latest forecasts from the Office for Budget Responsibility, the UK is well and truly in recession, and inflation will likely level out at 9.1% at the end of this year.

As one of several measures brought into the housing market, the chancellor announced that the cuts to stamp duty, which Kwarteng announced would be permanent, would be phased out by March 2025. This basically means that a two-year time limit has been put on the cuts, after which they will be withdrawn.

Kwarteng had doubled the threshold at which stamp duty is paid to £250,000, while first-time buyers are also exempt from paying the first £425,000 of their purchase as long as the overall property price is below £625,000, rather than the previous £300,000.

Mr Hunt said that such an incentive will help support the housing market at a time when the economy needs it most, after which the gradual projected slowdown for the housing market over the next couple of years will render it less vital.

Figures from the OBR suggest that house prices could fall by as much as 9% between now and the third quarter of 2024, prompted largely by higher mortgage rates and a general lack of ability. The less competition there is for today’s excessively priced homes, the lower their prices will fall over time.

While a potential fall in average property prices of 9% seems steep, it is less so when put into perspective. Between the 12 months leading up to October this year, average property prices in the UK increased by a further 8.3%, according to data from Halifax.

Promising ‘to restore public finances and make the tax system fairer’, Mr Hunt also outlined a reduction in the previous tax-free allowance for capital gains tax (CGT), down from £12,3000 to £6,000 in 2023/24 and again to £3,000 in 2024/25. This is likely to have a significant impact on the general finances of second homeowners and landlords, who will be liable for larger payments upon selling residential properties.

But as the 28% CGT tax rate for higher-rate taxpayers has not been hiked, the outcome is not quite as bad as many had expected.

Elsewhere, the 45p rate tax threshold was reduced from £150,000 to £125,000, instantly moving a great many earners across the UK into the higher tax bracket. The chancellor declared that the inheritance tax nil-rate band would be frozen until the 2027–2028 fiscal year and that owners of electric vehicles would no longer be exempt from paying road taxes starting in 2025–2026.

What this means for the housing market

The combination of higher interest rates, higher taxes, and an elevated cost of living will undoubtedly have a knock-on effect on the housing market. People across the UK are already shelving their property purchases and investment plans indefinitely, and the trend is likely to continue for some time.

During this, a significant fall in average house prices is expected, but not so much as to reverse the extraordinary gains UK homes have collected over the past few years. Mortgage availability will likely increase as stability returns to the market, but most experts think the general picture will get worse before it gets better.

Newly published government data suggests that more council home construction projects commenced in London in 2021 than in the rest of the country combined. A total of 5,494 projects broke ground in the capital last year, compared to 4,325 spanning the rest of England as a whole.

Combined, this adds up to the most new council housing projects commenced in any year since 1979, when 9,128 projects broke ground.

Southwark was the London Borough that topped the table in terms of new council housing starts, with 895 new projects having commenced last year.

“There’s no quick fix to London’s housing crisis, but we’re taking significant steps in the right direction by backing a new renaissance in council homebuilding,” commented Mayor of London Sadiq Khan.

“In London today, we’re not just building more council homes; we’re building better homes too. The new generation of council homes are some of the best that have ever been built: modern, sustainable, and fit for the 21st century.”

“These new homes form a key part of building a better London for everyone: one that is greener, fairer, and more prosperous for all.”

“But the headwinds from recent economic chaos, combined with the effects of the pandemic, Brexit, the soaring cost of construction materials, and rising inflation, are hitting housebuilders hard and making housing delivery increasingly challenging.”

“That’s why I am urging ministers to provide additional funding so I can continue to deliver the good-quality and genuinely affordable homes that Londoners desperately need.”

The leader of Southwark Council, Kieron Williams, also praised the efforts being made to provide more affordable housing options in London.

“With the cost of living soaring, now more than ever, we need more council homes in our city,” he said.

“I’m delighted that we were able to start another 895 in Southwark last year, thanks to support from the Mayor, alongside our own council investment.”

“Achieving the most starts in London has been far from easy given the tidal wave of challenges facing the construction industry.”

“What worries me now is that those challenges are only getting harder as the national housing crisis deepens and construction costs spiral.”

“Having such a strong partnership between the mayor and councils is making a real difference, but we urgently need the government to get serious about solving the housing crisis too.”

Living cost crisis

The construction of thousands of new council homes in London may eventually bring some relief to those who continue to find themselves priced out of the market. In the meantime, the growing exodus of younger renters leaving London to find more affordable homes elsewhere is likely to continue.

Between April and March this year, the average rental price for a one-bedroom property in London equalled just over 46% of the average Londoner’s gross median pay. By contrast, renters across the rest of the country use around 26.4% of their gross median pay for rent.

According to Foxtons Estate Agents, one of the main drivers behind skyrocketing rent prices in London is explosive demand, coupled with minimal available inventory. They said that around 23,000 rental properties were listed on the market in September, meaning that an average of 29 people were competing for each property listed.

There are approximately 9% fewer properties available on the private rental market in London than at the same time last year, while demand has increased by as much as 20%.

Consequently, as many as 20% of younger people are planning on leaving London entirely, as they simply cannot afford to keep spending so much of their money on rent costs alone.

Return to normality triggers further affordability issues

Speaking on behalf of Hamptons, head of research Aneisha Beveridge said that the return to the new normal would most likely continue pushing average London rental prices higher.

“With COVID-19 being pushed further to the back of people’s minds, life in the capital is slowly returning to its new normal. Tenants are returning to the bright lights of the city, and this is driving rental growth to record highs,” she said.

“The rise of remote working means that fewer tenants are moving to the capital specifically for work. In fact, a growing number of tenants choosing to live in London are working fully remotely and could live nearly anywhere in the country. The footloose nature of many jobs today means that it will be culture and lifestyle rather than employment that become the capital’s biggest draw.”