Mortgage rate rises over the last two weeks will heap “pressure” on buyers with house sales “remaining price sensitive” throughout this year and into 2024, says Savills.
The combination of higher-than-expected inflation, the prospect of elevated Bank of England interest rates and lenders repricing home loans, will squeeze house prices, according to the estate agent’s June residential research update.
Savills head of residential research Lucian Cook says the current market “is likely to put renewed pressure on the amount buyers that are willing or able to borrow over the coming months.
“Consequently, it looks like the housing market will remain price sensitive over the remainder of 2023 and into 2024, meaning prospective sellers will need to remain realistic about the price at which they market their property.”
Cook adds: “This said, we remain of the opinion that any further downward pressure on prices will be mitigated by demand from cash buyers and measures taken by lenders to help people facing a sharp increase in mortgage costs as they come to the end of their fixed-rate mortgage.”
Aldermore brought back a range of home loans to the market on Friday, which were up to 75 basis points higher before they were pulled a few days before, following swap rate rises.
Last week, lenders pulled almost 400 home loans, around 300 BTL deals and raised rates, as firms reacted to the prospect of further Bank of England base rate rises, after inflation fell to higher-than-expected levels sparking a rise in swap rates.
The moves came after inflation fell to 8.7% in the year to April two weeks ago, driven by clothing and food prices rising at their fastest rate for almost 45 years.
This caused investors to bet that interest rates, which rose by 25bps to 4.5% last month, will rise “further for longer” this year, with some estimates as high as 5.5% by the end of the year. Swap rates, which influence mortgage rates, rose as a result.
For property investors, the wide-ranging Renters Reform Bill, launched in parliament last month, is the biggest regulatory change in the private rented sector since the introduction of the Assured Shorthold Tenancy Agreement via the Housing Act 1988, says the estate agent.
Among a range of measures, the bill will scrap Section 21 no-fault evictions that allow landlords to end a tenancy at their discretion.
Cook says: “Ultimately these new grounds for possession will protect the liquidity of the landlord’s investment, however, it will require a new approach to be taken towards rent reviews.
“As the bill is currently drafted, rent reviews will be initiated by the landlord serving notice of a rent increase in a specified form, with the tenant having the power to refer the matter to the First Tier Tribunal where they think the landlord’s proposal is above the market rate.”
He adds: “Practically this is likely to put a greater onus on landlords to justify any proposed rental increases through market evidence.
“This comes at a time when financial pressures faced by mortgaged and unmortgaged landlords has widened substantially, as costs of mortgage debt rise and the potential impact of restricted tax relief in a higher interest rate environment begins to emerge.”
