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The rise in market interest rates that has already happened will push up mortgage rates to at least 6% and reduce the size of loans that lenders can offer. The resulting drop in buying power makes a significant drop in house prices inevitable. Many …
27th September 2022
Investors have revised up how far they expect the Bank of England to raise interest rates as they continue to digest the tax cuts announced on Friday. This Update examines what the impact on the housing market would be, and whether that could prevent …
The Chancellor took a rare, targeted approach to Stamp Duty in today’s vast package of tax cuts. The changes will remove the tax altogether for large numbers of buyers while retaining most of the revenue. But the bigger near-term implication of fiscal …
23rd September 2022
The upward revision to our Bank Rate forecast means that mortgage rates will rise further and faster than we previously envisaged, to a peak of 4.7% in March. The resulting higher cost of mortgage repayments will make the fall in buyer demand that has …
21st September 2022
Arrears will rise as lenders adjust to higher rates The detailed mortgage lending data for Q2 show solid lending volumes, growing leniency on deposit sizes and income multiples, and arrears at a record low. But the ongoing adjustment to higher interest …
14th September 2022
London house prices and transactions have proven resilient to the headwinds of the cost-of-living crisis and rising mortgage rates so far. House price growth in London rose to 7.2% y/y in Q2, the highest since 2016. But that was still below the national …
13th September 2022
PM Liz Truss’ fiscal package will limit the size of the forthcoming recession, but that may force the Bank of England to raise rates further to get inflation back to target in the medium term. As a result, it increases the likelihood that mortgage rates …
8th September 2022
Downturn becoming entrenched A further deterioration in demand in August has led surveyors to accept that a fall in prices is coming. The survey is already consistent with prices falling by 2% q/q in Q4 this year, and the headwinds to demand will only …
House prices rise while outlook deteriorates The modest 0.4% rise recorded by Halifax in August confirms that house prices have continued to increase despite the sharp increases in mortgage rates we have seen so far and growing pressure on household …
7th September 2022
Rise masks deteriorating outlook The surprise increase in the construction PMI is little cause for optimism given it was driven by the reversal of an idiosyncratic fall in civil engineering activity a month earlier. Indeed, the commercial activity …
6th September 2022
Don’t read too much into solid August gain The solid 0.8% m/m increase in house prices in August suggested that house prices managed to retain some positive momentum despite growing pressure on households’ finances. But the drag on demand from the …
1st September 2022
Rising mortgage rates will sustain downward trend in approvals While mortgage approvals ticked up in July, that only reversed a fraction of their previous decline. And the drag on buyer demand from the ongoing increase in mortgage rates and surging …
30th August 2022
Prime central London (PCL) house prices have underperformed even disappointing wider London trends over recent years. But the latest data have been more encouraging and with prime buyers less exposed to rising interest rates and the cost-of-living …
23rd August 2022
The latest figures suggest that Build to Rent (BTR) investment has continued to expand rapidly. Despite this trend, which predates COVID-19, the sector remains under-developed by international standards. But with plenty of opportunities for investors, we …
16th August 2022
Overview – Tight supply has supported house prices so far, but they now appear to be stalling. Demand will only deteriorate further over the coming quarters as rising mortgage rates, high inflation, and the recession weigh on buyers’ budgets and …
12th August 2022
Limited supply supporting pricing for now The RICS survey showed that weaker demand has not yet fed through to falls in prices, but sales volumes are beginning to wilt. We think it is just a matter of time before prices follow activity lower. The new …
11th August 2022
House prices stall Like Nationwide, Halifax reported that house price growth ground to a halt in July. As these house price indices are based on mortgage approvals, its possible that affordability rules put a temporary brake on prices. But equally it …
5th August 2022
Optimism misplaced as activity slows The fourth consecutive decline in the headline construction PMI took the index below 50 for the first time since January 2021. While driven by an idiosyncratic drop in civil engineering activity, the upbeat new orders …
4th August 2022
Increases in house prices slow to a crawl While the rise in the annual rate of house price growth from 10.7% in June to 11.0% in July will make most of the headlines that was driven by base effects. Instead, we think the main takeaway from the July …
2nd August 2022
We now think that the reduction in consumer real incomes due to high inflation will push the economy into recession this year. But the Bank of England is likely to have to keep on raising interest rates regardless in order to bring inflation back down to …
29th July 2022
Slip in mortgage approvals in June a sign of the slump to come Mortgage approvals slipped back to below 2019 levels in June supporting our view that higher interest rates will cause housing market activity to slump over the next two years. Indeed, further …
Although less widely reported than the house price boom, rents have been setting records too. The 11% y/y rise in the Zoopla rents index in Q1 was the fastest since the series began in 2006. That strength was driven by extraordinary factors related to the …
26th July 2022
Overview – A rise in CPI inflation from the 40-year high of 9.1% in May to a peak of 12% or higher in October will reduce real incomes by enough to mean that a recession now seems inevitable. Our forecast that real household disposable income will fall by …
18th July 2022
Lenders to tighten credit standards even as demand softens The Q2 credit conditions survey shows that lenders will not loosen credit conditions to keep the house price boom going like they did in 2004-2007. Indeed, despite the fact demand is expected to …
14th July 2022
Economic reality finally catching up with the housing market There was an unmistakeable cooling in the housing market in June as the new buyer enquiries balance slipped further into negative territory. With mortgage rates continuing to rise and the …
The impact of rising mortgage rates and the hit to real incomes from high inflation have given rise to fears of mortgage repayment difficulties when existing borrowers come to remortgage. But the widespread use of fixed-rate deals, higher levels of …
11th July 2022
18-year high house price inflation will mark the peak The substantial rise in the Halifax house price index in June was surprising given the softening in the Nationwide figures in the same month, and the deterioration in leading indicators of housing …
7th July 2022
Slowdown in construction activity intensifies in June The third consecutive monthly fall in the construction PMI suggests that that growth in development activity is slowing. The near-term outlook has also deteriorated, with growth in new orders easing …
6th July 2022
Weak approvals point to subdued lending demand ahead Mortgage approvals remained relatively weak in May supporting our view that higher interest rates are now starting to curb activity. As mortgage rates are set to rise further over the next year, this …
1st July 2022
More evidence of easing house price growth Monthly house price inflation slowed in June to its lowest since last September according to the Nationwide, while the annual rate continued to edge lower. That is consistent with our view of steady deceleration …
30th June 2022
After reaching a record-high in June, we think that inflation in builders’ costs will soon start to ease. But even as cost pressures subside, construction volumes will slump as the housing market slows. Construction volumes strengthened in the first half …
28th June 2022
Measures of housing market activity and prices tend to follow a predictable sequence in downturns. In this Update we highlight the key US and UK variables that clients should follow to track the housing downturn and identify turning points. With most …
24th June 2022
We suspect that the main reason for the hasty withdrawal of the Financial Policy Committee’s mortgage affordability test is that it was on course to become a severe constraint on many buyers’ financial firepower. If left in place, it could have led to a …
20th June 2022
The rise in mortgage rates from a low of 1.5% last November to 1.8% in April is beginning to weigh on home purchase demand, with the new buyer enquiries balance of the RICS survey dropping into negative territory in May. Supply is also improving according …
Mortgage rates to continue to rise as lenders rebuild margins The detailed quarterly mortgage lending data from the Bank of England confirmed that the squeeze on lenders margins intensified at the start of the year, suggesting that mortgage rates will …
14th June 2022
The Prime Minister last week announced a trio of policies aimed at reversing the decline in home ownership since the financial crisis. We doubt the schemes will make a big difference, although more consistent availability of low deposit mortgages could …
13th June 2022
Gathering evidence that the market is on the turn Softening demand in the RICS survey is a sure sign that rising mortgage rates are now putting prospective buyers off. Together with steady supply, that left the survey consistent with house prices …
9th June 2022
Construction sentiment worsens as economic headwinds mount The second consecutive fall in the construction PMI in May points to a sustained slowdown in development activity. And with the new orders balance easing and optimism of future demand declining, a …
8th June 2022
Momentum in house prices remains strong for now The slight easing in the Halifax measure of annual house price inflation reflects an outsize increase in prices a year earlier rather than any loss of momentum. But there are signs that rising mortgage rates …
More evidence that house price increases have peaked There was another slowdown in the annual rate of house price inflation in May according to the Nationwide. That was in line with our expectation of sustained slowdown through the rest of the year, …
1st June 2022
Approvals drop back to pre-COVID-19 levels in April The drop in mortgage approvals in April provided early evidence that interest rate increases are starting to hurt activity. As we expect the rises in both policy and mortgage rates to continue apace over …
31st May 2022
The consensus among professional forecasters is that house price growth will slow but remain positive over the coming years, as a robust jobs market prevents forced sales. But even in the absence of financial distress, we think that a decline in prices is …
26th May 2022
Record high rental growth at the start of the year is likely to mark a peak given signs that tenant demand is starting to ease. But strong wage growth and the rising cost of buying as mortgage rates rise mean rental growth is set to ease rather than …
19th May 2022
Overview – If we are right that the Bank of England will have to raise interest rates to 3.00% to stamp out inflation then we are on the cusp of the fastest increase in mortgage rates since the late 1980s. That caused house prices to fall by 20%. But the …
13th May 2022
Rising mortgage rates not yet hurting demand The housing market shrugged off the effects of rising mortgage rates and the cost-of-living crisis in April as intense competition between buyers bid up prices further. However, with mortgage rates set to …
12th May 2022
Reality bites as PMI shows signs of a slowdown in activity The construction PMI for April showed that building activity remained solid, but that the pace of growth has slowed. An easing in new orders growth also hints at a further slowdown ahead, as the …
6th May 2022
A strong April, but approaching a turning point In contrast to Nationwide’s measure of house price inflation, there was no sign of house price growth slowing in the Halifax figures for April. But with mortgage rates only just starting to climb to reflect …
Robust for now Unchanged mortgage approvals in March showed that the housing market remained buoyant throughout the first quarter. But the emerging trend of rising mortgage rates on new loans rising will only accelerate, which will reduce demand and …
4th May 2022
Signs the housing market is turning the corner mount The slowdown in house price inflation in April adds to signs that the housing market is beginning to cool and suggests that the peak in house price inflation is now behind us. We expect house prices to …
29th April 2022