01 Sep 2022

Will the Housing Market Crash?

Category: House Prices

The property market pendulum continues to swing in favour of current landlords, who are seeing significant gains as property prices grow.

But the question remains, will the housing market crash?

Over the past 12 months, the annual house price growth has hit 8.3%. Despite the economic pressures, property prices have grown at a faster rate than in 2021. In July 2021, the average growth rate was 6.6%. Property price growth remains strong and steady across the UK. In the past 12 months, average property prices have risen by £19,800, but landlords are holding their breath as conversations circulate about the housing market crash.

Author: Ahroob Jabbar

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Becoming a Homeowner...

A Distant Dream?

In the first half of the year, 35% of sales were driven by first-time buyers. However, as we head into the end of 2022, things are not looking bright for first-time buyers. New data released by Zoopla shows that first-time buyers need an additional income of £12,250 to afford a mortgage, at an average rate of 4%. The increase in mortgage rates indicates that many first-time buyers will not be able to climb the property ladder as wages remain the same.

The cost of living continues to intensify alongside interest rates. Surprisingly market activity also persists at high levels despite the economic pressures and uncertainties. Unfortunately for some aspiring homeowners, the dream to climb the property ladder is slipping away due to the cost-of-living crisis, which is only set to worsen in Q4 2022.

More Renters to Enter the Market

Rental Demand Rises

Those with higher incomes are more likely to secure a mortgage. Whereas, those with a lower income are more likely to rent because people with a lower income have limited flexibility with their money and spending habits. Therefore, they spend more of their pay on essentials such as food and bills. In addition, energy prices will spike in the Autumn, restricting any additional expenditure. As a result, people will be more focused on day-to-day living than on making important decisions such as moving home.

Inevitably, those in a decent position to buy, with a healthy deposit, will not face increased competition when trying to purchase a property. If you are currently hunting for a home, you will understand the frustration of continually missing out on securing a property. This is because there are many more buyers than sellers in the market, and each buyer offers a higher bid to purchase the property. As a result of higher mortgage rates, buyers may choose to stay in the rental market for longer. This is favourable for investors and buy-to-let landlords, as rental demand will remain steady for the foreseeable. Furthermore, if you are a landlord or investor, the vacancy rates of properties will drop as more people enter the rental market. Therefore, it is the perfect time to enter the BTL market.

Supply & Demand

Levels of housing supply in the market have started to increase steadily. The latest market report by Zoopla shows that the average UK estate agent had 20 homes for sale in the pre-pandemic era. However, this dropped to 12 homes and has slowly clambered up to 14 homes. Although supply is increasing, it is very gradual and remains below pre-pandemic levels.

The lack of supply and weakening demand for housing is caused by the seasonal trend. As we stroll through the slow summer months, it is not unusual for the housing supply to dip slightly. Therefore, the long-standing supply and demand imbalance remains.

More Markets for Investors to Choose From

Profitable Investments

Mortgage rates have doubled over the last few months. The inflating rates may influence market activity towards the end of the financial year, well into 2023. At the start of the year, mortgage rates were less than 2%. The rates will soon rise to 4%. Although the rates are growing gradually, they are still at some of the lowest levels in history. Buy-to-let investors should take advantage of these low base rates.

Furthermore, many are waiting for the housing market crash to acquire property. However, you must remember if the market crashes and prices dip, the inflation rates will soar. Although prices may decline (slightly), mortgage rates will spike, so it is best to secure a mortgage and a property now whilst the rates are low. Also, the economy is much more resilient than in 2008, so more than likely, history will not repeat itself.

The property market is robust, and investors can now choose from several different cities to invest in, rather than focusing on the Capital. Once upon a time, investors would have only profited from investing in the Capital, as it was the go-to investment hotspot. Property investors can now look further afield, including the midlands or the north. Therefore, there is a lot more choice for investors, despite the shortage of stock. Several cities are showcasing property market growth above average levels and investing here will be profitable.

CityRise Verdict

Will the housing market crash?

The Help to Buy scheme was introduced in 2013, a key driver of growth in the property market. This scheme has become more popular, allowing first-time buyers to invest with a 5% deposit to buy a property. The Help to Buy plan made it more affordable for aspiring homeowners to secure a mortgage. However, as the project ends in March 2023, applications will stop being accepted this October. Consequently, this will impact market activity as sales agreed by first-time buyers may fall. However, this does not mean activity in the market will decline because levels are still at an all-time high, as buyers desperately search for properties and homeowners search for bigger spaces.

You may remember the 2008 market collapse, and if you do not, you will have heard of the market crash during the Global Financial Crisis. Since then, lending rules have become firmer, ensuring minimal risk in the market. Therefore, if there is a market decline on the horizon, the sector will not be affected drastically. In July, the Consumer Price Index inflation hit 10.1%. The investment bank Citi has predicted inflation will hit 18.6% in January. Therefore, when inflation spikes in Q4, first-time buyers may be affected by the economic turbulence. As a result, more aspiring homeowners will move into or stay in the rental market. Hence, the predicted rise in rental demand.

In conclusion, if you are waiting for prices to drop drastically, please stop waiting. It is the perfect time to invest in the buy-to-let market. Yes, inflation may drive mortgages up, but if you can secure a mortgage at a fixed-term rate now, this will save you in the long run. If you opt for a variable rate, you will be affected by the increasing rates. Mortgage interest rates are lower than ever. Also, do you really believe prices will plunge to extremely low levels? There are way too many buyers in the market. Many have not been able to secure a property due to the shortage of houses available in the UK. As a result of waiting, most of the buyers have continued saving their deposits. Ultimately, a lot of people are in the same position. Those who cannot afford to buy a home in the current climate may continue to rent, which will only generate more demand for rental accommodation in the buy-to-let sector.

Please note, that this is not financial advice, please seek advice from a qualified mortgage broker who is FCA regulated. All information provided, including any, opinions, views and predictions, are for informational, and educational purposes only and should not be interpreted as personal investment advice. Please conduct your own due diligence and consult a licensed financial advisor before making any investment decisions.

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