Inflation, rising interest rates, and what that means for you in the local housing market.

Over the past week, I have seen a plethora of differing gloomy reports and predictions from corporations including the national press in relation to the future of our local housing market. To help explain exactly what the changing market might mean to you I have decided to write this blog.

Are market prices crashing and why?

Absolutely not. In reality, the value of our homes is underpinned by a lot more than changes in the cost of borrowing. It is true and probably fair to commentate that sellers are at much more of a chance of making a successful transaction if they are realistic about the value of their property in the current climate. Whilst the exhausting fight to buy a home in the East Midlands may be behind us in the short term, there are still serious buyers out there. As a nation, we are several million homes short of the population’s housing needs creating a supply vs demand issue.

Do you expect a ‘crash’ in market values?

I don’t expect so. We have however seen a softening of achievable prices in the market. Experience tells me that prices achievable today are in line with those sales completed in the first quarter of 2022; far from a ‘crash’ in values. Buyers are not willing to pay the arguably ‘overheated’ market premiums that in many cases were asked of last year prior to the perceived ‘slow down’ of the local market.

Why don’t you agree with the national press and those that are negative about the current and future market?

Many commentators are likening the market of today to that experienced in 2008/2009. In reality, things could not be any more different. A sustained period of growth since 2012 has cemented a large percentage of equity in people’s homes. Those younger or less fortunate to have missed those years may benefit from parental help thanks to the equity gains made during the market ‘boom’ of Covid.

Supply vs demand. Expect to see the national house builders slowing production as their construction costs soar and sales are slower to achieve. I believe that this will create a much larger chasm in the supply vs demand equation, eventually bolstering the values of properties available on the market.

Surely mortgage rates will force owners to sell at any price?

Absolutely not. Of course, there will be specific stories of unjust and unfair hardship for homeowners; for example, illness, the loss of income or similar. Once again however, the reality is that any homeowner mortgaging after the Mortgage Market Review of almost a decade ago has had their affordability ‘stress tested’ to ensure that they would still be able to make their payments should rates rise to on average around 7%. This fact alone completely alters the landscape vs 2008 and should render ‘repossession sales’ almost nil.

With the upward trend in values, an estimated 95% of homeowners have equity in their homes worth fighting for. For that very reason don’t expect ‘basement bargains’ out there, and the few that may come to market are likely to be in high demand from numerous cash purchasers.

Now is definitely a bad time to buy though?

Not necessarily. For those fortunate enough not to require lending any sale and subsequent purchase is handled in a similar market condition, often negating the ‘softer’ prices that a seller may have to consider in order to move.

A message for first-time buyers; we have seen this cycle in the market before and generally what follows is a sustained period of growth. On numerous occasions between 2012 and 2015 I heard the same sentiment ‘prices can’t go up much more surely…?’ Welcome to 2023, where East Midlands housing stock values have risen on average 25% since Covid lockdown 1 alone!

It is true that affordability has been dented for many, owing to the higher cost of borrowing. The good news is that this ‘pain’ is likely to be relatively short-term. Perhaps 1 year, maybe 3, but in the vernacular of a lifetime will a buyer who didn’t take advantage of softer prices look back in 2026 and regret their decision with many having paid increasing rent for a discernible period.

My landlord wants to increase my rent, how can they possibly expect me to do so right now?

My sympathies extend to any tenants in this situation, and absolutely if your landlord is insisting on inflation-busting rent increases then you need to take guidance from an organisation like citizens advice or the NAEA.

However, the very nature of the private rental market is that high inflation, rising rates, and generic workforce pay rises have all contributed. Private rental properties account for almost half of all rental properties in the UK. It is I would argue fair to state that a stricter regime and tax cuts aimed at landlords over the past 5 years have seen a record number of landlords selling. Those left in the market could achieve a lot more return for a lot less hassle by selling up and leaving their money in the bank and are themselves under pressure from hugely inflated mortgage costs. Unfortunately for many landlords, there is no option but to raise rents in line with inflation to avoid being forced to sell up from underneath their tenants. In short, to avoid a serious housing crisis in the private rental sector, sustainable rent reviews are part and parcel of daily life, just like pay rises and rate changes.

As a landlord, I haven’t reviewed my tenant’s rent since before Covid. What should I do now that I can’t afford to keep my investment property due to high remortgage rates?

Don’t panic! We employ a very simple-rent review as part of our management service. In many cases, landlords do feel for their tenants and their situations. But the job of an agent is to ensure the sustainability and enjoyment of your investment along with the tenant’s quality of life. We will happily advise you on current market value and negotiate with your tenant with trust, honesty, and integrity to ensure that your property is working for you as it should and that your tenant can sustainably enjoy years to come in their home.

And after all of that please can you summarise?

Apologies, this is obviously a subject that I have plenty of passion for and experience with!

In the end, I believe that we are in an inevitable cycle right now. But what will not change ever is the requirement for each one of us to have a roof over our heads and in many cases, a home that we love, feel safe in and can be proud of. ‘Waiting to act’ may have its benefits, but of course, for every pro is a con.

So, hang on in there, that buyer will come along! If you are buying, be sensible. After all, property is a long-term investment in so much more than financial terms. Landlords and tenants? Be reasonable, and if that is hard to do ask an agent to take on the work so that you don’t have to.

I extend an invitation to discuss anyone’s concerns personally and look forward to helping you to continually navigate through an ever-changing market but one that we are all integrally linked to and serviced by.

Tom Smith

Managing Director

Smiths Property Experts