UK Housing Market Dynamics and Mortgage Charter to Support Residential Borrowers

Nicky Stevenson discusses the current dynamics of the UK housing market.

The recent rise in mortgage rates by the Bank of England has sparked discussions about the impact on the UK housing market. However, despite the headlines, consumer confidence remains robust, with demand outpacing supply and sensibly priced properties continuing to attract interest and offers.

Nicky Stevenson, Managing Director of Fine & Country, says that recent data from Zoopla and Hometrack, reveals that approximately 47% of owner-occupied households in England and Wales are financed through mortgages. She notes that the increase in mortgage rates has garnered significant attention, particularly for the seven million households affected. While most mortgages are on fixed-rate deals, around 15% are estimated to end this year.

“In May, there were 50,524 mortgage approvals for new home purchases, which is 15% lower than the longer-term average observed between 2010 and 2019. Nevertheless, this represents a significant improvement compared to January, when mortgage approvals were 34% lower. These numbers indicate the growing acceptance of the new interest rate landscape,” Stevenson comments.

Recognising the importance of supporting residential borrowers, the Treasury has collaborated with major lenders to develop a Mortgage Charter. This initiative has garnered support from 85% of the industry and aims to provide assistance and options for customers affected by changing mortgage conditions.

Stevenson notes that under the Mortgage Charter, customers who are up to date with their payments will have the flexibility to switch to interest-only payments for a period of six months or extend their mortgage term, with the option to revert to the original term within six months. Furthermore, customers nearing the end of a fixed-rate deal will have the opportunity to secure a new deal up to six months in advance, allowing them to change to a more favourable arrangement until their new term commences. Except in exceptional circumstances, repossessions will not be pursued within one year of the first missed payment.

“Despite the challenges in the UK housing market posed by rising costs, consumer confidence in May, as measured by GfK, improved for the fifth consecutive month, reaching its highest level in 17 months. This suggests that individuals are increasingly optimistic about their personal finances. Demand for property, as reported by Rightmove, remains steady at 6% higher in the four weeks leading up to mid-June compared to 2019. However, it is evident that rising costs are impacting buyers’ purchasing power,” says Stevenson.

She adds that according to a Dataloft poll, 47% of agents indicate that the greatest impact of mortgage market volatility on buyer habits is a reduction in budgets. Research conducted by Zoopla reveals that transitioning from a 4% mortgage rate to a 6% rate, based on an average-priced property, will result in a 19% decrease in buying power.  “Consequently, pricing strategies become crucial in the current market,” comments Stevenson. “Zoopla highlights that the average price reduction on a property is 3.8%, with more than two in five sellers accepting a discount of over 5% in June. Rightmove’s research indicates that price-reduced listings take more than double the time and are more than 10% less likely to sell, subject to contract (SSTC), compared to non-reduced listings.”

Stevenson notes that overall, the property market is experiencing stable month-on-month prices, with annual price growth ranging from 3.5% to -3.5% depending on the indices and their calculations. “Notably, the prime market demonstrates greater resilience, currently boasting an annual price growth of 7.7% across all regions of England and Wales. The threshold for a prime market property is now set at a minimum of half a million pounds in all regions, except for the North East. The average price for all types of prime market property exceeds £1 million, excluding semi-detached houses,” she adds.

“As the housing market continues to adapt to the changing mortgage landscape, it is crucial for industry stakeholders to prioritise the needs of residential borrowers. The Mortgage Charter, with its industry-wide support, provides a framework to assist customers in navigating these evolving conditions. By fostering consumer confidence and implementing prudent pricing strategies, the housing market can remain resilient in the face of ongoing challenges,” Stevenson concludes.