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  • Writer's pictureInvestment Synergy Team

The week that was - seven days that shook Britain’s housing market

Carol Lewis - September 30 2022, The Times

The past seven days may have been a long time in politics but it has also been a tumultuous week for the property market swinging from a surge in interest rates to a slump in the market and the beginnings of a property crash.

Here’s what happened and what could happen next:

Friday

The chancellor Kwasi Kwarteng presents a mini-budget packed with tax cuts including raising the stamp duty threshold from £125,000 to £250,000 with first-time buyers now exempt from paying tax on the first £425,000 of a £625,000 property in England and Northern Ireland.


The calm before the storm. Estate agents’ phones stop ringing as buyers digest two pieces of conflicting news with the Bank of England, which had raised interest rates the day before — by 0.5 percentage points to 2.25 per cent — trying to calm inflation while the Treasury announces stimulating tax cuts. Within an hour of the announcement, traffic to the Rightmove property portal jumps by 10 per cent and the phones start ringing again.

“We had a couple of buyers who had paused on transactions not exchanging until they had found out what was in the budget but as soon as it was announced they carried on. There are still plenty of sellers coming to market too,” says Simon Tollit, partner at Tedworth Property estate agency in central London, who also reports an uptick in long-term renters who are inquiring about buying because inflation is eroding their cash reserves.

Weekend

The chancellor tells the BBC that he wants to keep cutting taxes. Meanwhile the Labour leader Sir Keir Starmer tells the BBC that he is committed to bringing back the top rate of income tax.

“There was a flurry of inquiries from first-time buyers. People were rushing to lock in mortgage interest rates knowing they were going to save a few grand on stamp duty after the budget. For some it meant the rate rise was offset by the tax saving,” says Baljit Arora, managing director of Orlando Reid estate agency in Manchester.

In southwest London Anna Arden, a consultant with Harding Green estate agency, is busy too: “I agreed a sale on Sunday, a one-bedroom flat for £450,000, and the buyer was keen to push it through as quickly as possible. There is a real sense of urgency before rates rise again.”

Monday

The pound slumps to $1.03 against the dollar and there are calls for the Bank of England to introduce an emergency interest rate rise, which it declines. Lenders including Halifax begin to withdraw fixed-rate mortgages (284 are pulled in 24 hours).

The pound’s demise is good news for foreign buyers. “I had a US cash buyer who has been considering buying this particular house since March, on the market for £15 million,” says Marc Schneiderman, director of Arlington Residential estate agency. “I hadn’t heard from him in three months and on Monday he called and we agreed terms. It was a 30 per cent saving on what it would have been had he bought it back in March.”

However, at the other end of the market first-time buyers are thrown into disarray as the stamp duty cut suddenly looks as if it will be eaten up by interest rate rises, with economists now predicting the base rate will peak at about 6 per cent next year.

“I want to get on the property ladder. It has been an ambition of mine since I was a kid and I thought I was close to realising it but now it seems so far away,” says first-time buyer Callum Ferguson, 34, a communications assistant at charity Heart Valve Choice in Manchester.

Ferguson, who has been looking to spend about £300,000 on a house on the outskirts of Manchester, has had two purchases fall through and two mortgage offers expire in the past two years. “The first mortgage was about 1.4 per cent and the second one about 2.1 per cent, now what would it be? More than 5 per cent. Plus, there’s everything else that’s going on with affordability. Do I wait a year? But the rent is going up. I’m in limbo.”

Tuesday

The International Monetary Fund (IMF) criticises the government’s budget, a further 935 mortgages are pulled and economists predict that property prices will fall 10-15 per cent. Wales introduces a transaction tax cut for housebuyers.

“It feels more like buying cryptocurrency than a house,” says Will Hook, 37, a software engineer. “The last few weeks have been full of stress. Buying a home feels like gambling with our life savings and future rather than a safe investment.”

Hook, who for nine months has been looking for somewhere to buy in the home counties for about £500,000, says he will now have to compile a spreadsheet to work out what he and his partner can afford while factoring in a 10 per cent mortgage rate. “We don’t want to end up in negative equity. All we want is a three-bedroom semi so we can start a family. I wish the government would stop meddling. I feel quite angry.”

Wednesday

The Bank of England steps in and buys bonds to try to stabilise the money markets, and the chancellor meets the banks to try to calm fears. Labour announces that it will give first-time buyers first refusal on new developments and increase tax on foreign buyers.

As the news worsens, the anger grows. Thousands of first-time buyers log in to watch Charlie Lamdin’s Moving Home with Charlie live stream on Wednesday morning in the hope of finding some answers. “It’s a bloodbath with people pulling out or delaying sales,” says Lamdin, the founder of Best Agent property portal. “People are left not knowing what they can afford. I am overwhelmed with requests for advice. Transactions are going to fall off a cliff. It’s going to be brutal. If first-time buyers can’t buy, then the rug is pulled out from under the property market. There are people out there in negative equity. If people have spare rooms they will need to find lodgers and others will be forced move back in with parents.”

One home mover, who wishes to remain anonymous and is considering pulling out of selling their three-bedroom semi and buying a four-bedroom detached house, says: “We have our mortgage valuation today and I’m expecting them to downvalue our offer of £850,000. There was one other buyer interested and we stretched ourselves. I think they might say its worth £800,000 and the mortgage company will then pull our deal, which is 3.7 per cent fixed for five years, and we will have to get another which will cost more and we won’t be able to afford it. We are really considering pulling out. I’m aware that our buyers are probably having the same conversation.”

Others are rushing to use their mortgages in principle before they expire. Arden has three first-time buyers hoping to outbid each other, plus others from the joint agent, on a two-bedroom ground floor flat in Earlsfield, southwest London, on the market for £735,000.

“First-time buyers are rushing to get their interest rates locked in and make the most of the stamp duty cut. Meanwhile, landlords are considering selling up,” she says.

Thursday

Prime minister, Liz Truss, defends her tax cuts in local radio interviews, meanwhile the pound gains ground against the dollar to tip $1.10 and several banks put up mortgage rates to 5% per cent plus.

Mortgage brokers report being overwhelmed with calls. Paul Neal of Derbyshire-based Missing Element Mortgage Services says: “It’s utter carnage out there. Lenders are withdrawing products and leaving brokers unsure when they will open again. We have 22 lenders who have stopped lending and this list is only going to get longer.”

“People are pulling out of purchases and renegotiating prices down, others are sitting on their hands and waiting. The sentiment is negative — unless you have a property that will appeal to an international buyer,” says Mark Wells, chief executive of Invisible Homes, an off-market property portal.

Arora adds: “Inquiries have dried up. I’ve had a number of emails from people telling me they are going to put off their property search and continue to rent.”


Investment Synergy - time to diversify... time to reflect that not everything lasts forever...... “Times and conditions change so rapidly that we must keep our aim constantly focused on the future.” -Walt Disney




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