London celebrations

Halloween statement: what’s next for London’s ‘nightmare’ property market?


he political and economic chaos raging in the UK spills over onto the London property scene as chains collapse, buyers put plans on hold and the capital’s housing market slips back into a state of pre-Covid malaise .

London estate agents were waiting for September to arrive only to find themselves stuck in a busy autumn selling season, but the mini budget at the end of the month set off a rollercoaster of events that sent rates skyrocketing. interest and mortgage repayments and triggered the turn in the housing market.

Britain now has its third prime minister in seven weeks, and Monday will see the third budget statement in four weeks – perhaps the most anticipated autumn statement ever.

Jamie Durham, chief economist at PwC, believes Rishi Sunak’s quick appointment as prime minister could have a stabilizing effect but will not bring interest rates down to historic lows of the past decade.

The four chancellors of 2022 – so far (lr: new Prime Minister Rishi Sunak, Nadhim Zahawi, Kwasi Kwarteng, Jeremy Hunt)

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“One thing is certain,” he says, “medium-term interest rates will be significantly higher than those seen since the global financial crisis of 2008, which will have an inevitable impact on the housing market and the ability of people to borrow and spend.

“People are going to ask, ‘Do I feel financially secure enough to buy a new house?’ and for many, the answer will be “No”.

Haunted by the 90s

Most people don’t foresee a return to the dark days of the 1990s, but rather a throwback to the stagnation of Brexit votes.

Those who have to move can buy a smaller property or one without a garden. It would reverse some of the behavior of buyers from the pandemic era, during which house prices in the capital rose by 14.4% – almost £70,000 – on average between September 2020 and last month , according to the Land Registry.

Durham is not expecting a wave of distressed sales (when owners are forced to sell their properties cheaply and quickly) or a crash.

He predicts prices will return to where they were three or four years ago – before the Tory 2019 general election victory and subsequent ‘Boris bounce’ – when London property prices fell slowly and had fallen 1.4% in a stagnant market shrouded in Brexit uncertainty.

“There will be fewer people chasing every property and less one-upmanship. All in all, the market is expected to move much slower than we have seen in the past three years,” adds Durham.

“Trying to sell is a nightmare”

Bex Burn-Callander is trying to sell his flat in Lewisham but hasn’t had a visitor for two weeks

/ Adrian Lourie

Author Bex Burn-Callander, 39, is feeling the real effects of this turbulence. She has always lived in London but is now trying to sell her £550,000 Lewisham three-bedroom flat with roof terrace to buy a multi-generational home in Yorkshire.

Burn-Callander is caring for her mother, who lives in Pimlico on the other side of London, so together with her husband Patrick and their two young children, they are moving north to buy a bigger house together.

“The plan is to sell our two houses and buy a house together around York, which has excellent schools and is halfway between London and Whitley Bay, where Patrick is from,” explains the author.

First, they have to sell the two apartments, in very different areas of the capital, which has become tougher since the mini budget.

“It’s a nightmare. We listed our property over two weeks ago and haven’t had a single viewing. Our real estate agent, Sebastian Roche, says the market is extremely tough,” she says.

“It seems no one is looking to buy now because mortgage rates are skyrocketing – everyone is waiting for some political stability.”

Her mother has just appointed a real estate agent and is also preparing to put her apartment in Pimlico up for sale.

In addition to the sale, they are also keeping a close eye on mortgage rates. “We are a little stuck because we have to sell two properties before buying our next house. If mortgage rates are ridiculously high at that time, we might have to rent for about a year until they come back down,” she says.

“It’s hard because I really want to take care of my mum and be closer to Paddy’s family. We have no control at this time.

Will the Halloween statement help you?

Officially called the medium-term budget plan, Jeremy Hunt is expected to present the new government’s financial plans on Monday – Halloween.

While estate agents, buyers and sellers all hope the Chancellor will maintain the stamp duty reductions introduced by Liz Truss, the new system – which removes the tax levy on homes for first-time buyers up to £425,000 – is a brutal tool without addressing the scarcity of mortgage products.

“We would like to see how the existing stamp duty reductions will be implemented and maintained to encourage buyers and stimulate the housing market and see the government unveil plans to help first-time buyers through other housing programs. incentive,” says Property Transfer boss Simon McCulloch. Smoove website.

Jeremy Hunt is set to present an updated budget plan on Halloween

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Just to put salt in the wound of those who dream of owning their own home, the declaration comes on the same day as the deadline for purchase assistance – the last chance for first-time buyers to buy a property using the government loan program.

The program, in effect since 2013, allows first-time buyers to borrow a mortgage on a new home with a 5% down payment.

Without it, they now face two hurdles: the 10% deposit needed in London and the ability to pay off higher mortgages monthly. McCulloch is asking for plans to incentivize mortgage lenders to reintroduce affordable rates or for the government to expand purchase assistance.

“We could see deeper stamp duty reductions in certain areas of the country, or designated investment zones, to help the leveling process,” says Savills analyst Lawrence Bowles.

Heading into a house price horror show?

It’s still too early to see sales and prices falling in the data. In September, Rightmove saw a 2% increase in demand over the previous year and a 6.9% increase in the average asking price to £695,600.

There have been fewer price cuts in London so far – 31% of homes on Rightmove have seen their prices cut, down from 33% last year and 36% in the muted market of 2019.

This reflects the flow of transactions from buyers who are close to trade or completion and have already secured a good mortgage offer. But some sales are beginning to collapse.

“We’ve already noticed a significant drop in demand since the mini-budget,” says North London estate agent Jeremy Leaf.

“It’s clear that many buyers, especially those taking their first steps on the ladder, have hit the pause button because they simply don’t know how much their mortgage costs are likely to rise.”

Ahead of Savills’ official house price forecast next week, Bowles predicts a slowdown in average annual house price growth by Christmas, from 5.4% in September in London to around five, and a fall of 10 .1% to 7.5% across the UK.

Knight Frank’s Chris Druce agrees with research showing prices in London peaked last August.

Major commentators use the term “correction” or “adjustment” in prices, which means a fall in house prices, but to a lesser extent than a crash.

Existing owners should not be scared away

Real estate agents are now basing their forecasts for next year on a peak base rate of less than 5%, markedly different from the near-zero level we’ve been used to, but still below the 7% expected.

There are already signs of stabilization in mortgage markets for existing homeowners. Since the mini-budget, when mortgage products (particularly the high loan-to-value ratio) were taken off the market for repricing, there has been a rally in the lower risk categories.

For second or third home buyers who are moving or whose contract is about to be renewed, there are options such as temporarily switching to an interest-only mortgage; extending the term of the mortgage to reduce repayments; or take a mortgage payment holiday.

“There are a range of contingency options to help these people avoid repossession or distressed selling that aren’t available to first-time mortgage takers,” says Bowles.

He also advises researching where there are floating rate loans at 2.59% (as of Friday, October 21), which is well below the two-year fixed rates by closer to 6%.

“The bank rate would have to make very big jumps very quickly to get caught,” he says.

Young people unable to save for a down payment due to rising rents will move back into the family home (repeating the pattern of the pandemic) and more people will begin to share accommodation to drive down rents (reversing the pattern of the pandemic ), he says.

Accidental owners

Adrian Lourie

A sluggish sales market but a boiling rental market will push potential sellers into accidental temporary owners, Bowles predicts.

Danielle Bennett lives with her partner in a duplex apartment on the top floor of the Tooting Bec Heaver Estate, a conservation area for Victorian architecture.

The 37-year-old lawyer, who can work between offices in Manchester, Leeds and London, plans to tear herself away from her “light and airy duplex flat” in Harrogate to be closer to her family.

“I’m incredibly sad to be leaving but I’m starting a new chapter with my partner and I want to be close to my niece, my parents and my grandparents,” she says.

Bennett is out of step with the economic turmoil, having bought the two-bedroom flat amid the pandemic, and she has had viewings for the £675,000 flat over the past fortnight.

However, if she can’t sell, Bennett is also considering switching to a “consent to rent” mortgage.

Rather than a buy-to-let mortgage at a higher interest rate, a consent to lease agreement is for a short period of time only. She is also investigating Airbnb as “plan C”.