Property and investment market roundup – October 2022
October 2022 was one of the busiest months we have seen in the UK property market for a long time. Homebuyers and investors alike looked on as the latest variation of the Conservative government under Liz Truss delivered a ‘mini-budget’ which was widely viewed as a disaster.
The budget led to immediate uncertainty, a run on the Pound and yet more political change. In this article, we will examine the effects on the UK property market, the impact of Rishi Sunak on matters, and how homebuyers and investors can guard against uncertainty when buying their next apartment.
House price growth and demand
October saw continuing house price growth in the UK despite the uncertainty. The latest UK House Price Index from Zoopla shows that average growth across the country over the last year is 8.4%. This figure has led to some being sad about the end of double-digit growth, but it is more sustainable and owning property is a long-term prospect. To put it another way, this is still significant growth and a slight slowing now may prevent a sharper fall down the line.
Where the uncertainty has had a major effect is on the mortgage market. Higher interest rates means higher borrowing costs, and the Zoopla data shows that this has translated into a 33% reduction in new buyer demand. This reduced demand is due to the mortgage market and can be expected to recover once conditions improve.
It has also led to a slight reduction in the speed of sales over the month, and the fact that almost half of all transactions now are either using cash or short-term, small mortgages. When borrowing rates increase, those who can buy with cash are at an even bigger advantage than normal.
If mortgage rates remain high in the medium term the issue might become more of a worry. However, it is more likely that they begin to fall back to around 4% sooner rather than later. If and when this happens, any slowing in house price growth will naturally be mitigated.
Rishi Sunak becomes Prime Minister
Following the disastrous tenure of Liz Truss as Prime Minister, people were hoping that her successor Rishi Sunak would be better at the job. The initial to the news was positive. Pound Sterling (GBP) rose slightly, and while it was pushed back slightly by a strong Dollar, it was an early indication that the markets consider the worst of the uncertainty to have passed.
The gilt markets also found its strength again, including the five-year swap rates that are of particular interest to property investors. This is the rate of interest payable on some long-term financial transactions like property, and it had ballooned to more than 5% previously. Following Sunak’s victory, it reduced to just over 4.6%, which is good news for the property sector as a whole.
Lawrence Bowles, director of research at Savills, agrees with this positivity, saying: “The uncertainty of the last few months has had a material impact on gilt rates: the rate at which the UK government can borrow. In turn, this impacts the cost of borrowing for the rest of us. It affects mortgage rates for home buyers, development debt costs for housebuilders, and refinancing costs for property investors.
“Anything that helps bring certainty and confidence back to the market is likely to reduce borrowing costs. That, in turn, will reduce affordability pressure for households securing mortgage finance, for housebuilders starting on new sites, and for investors buying and operating homes for rent.”
Is this the right time to buy or invest in UK property?
However, it seems that Sunak’s promotion is not the only factor at play. Research carried out by Yopa over September and October 2022 showed that faith in housing remained strong even through the worst of the uncertainty. Despite conditions being poor, almost half of people thought it was a good time to buy property, and just fewer than 60% had confidence that house prices would keep going up.
In today’s economy, that level of confidence in a market is extremely rare. The imbalance between the demand for homes and the available supply is so big that house prices have a very high floor and an even higher ceiling. The shortage of homes – which grows by tens of thousands each year – will keep the market stable and growing.
So, with the price of borrowing still high, but with the likelihood of future growth still high, there remains one obvious path for homebuyers and investors looking to buy property in the UK.
By investing off-plan – while a development is still in construction – you can make the most of a market that is still growing and avoid the worst of the high borrowing costs. Whether paying with cash or a mortgage, you will not have to provide the balance of the payment until the building is complete, which will be in a few years’ time.
In many ways, this means you can get the best of both worlds. Investing off-plan in a location like Manchester means you can secure a property in a growing market while not having to expose yourself to unfavourable borrowing conditions today. You can potentially minimise your costs and maximise your returns.
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