A healthy market may please some, but it could harm others…
House prices are continuing to rise, welcomed by some to be a bit of extra Christmas sparkle at the end of another challenging 12 months for the industry – but could it ultimately harm broker business, by pricing out the next generation of homebuyers… your future customers?
On first sight, the latest RICS Residential Market Survey data seems encouraging. House prices showed the fourth consecutive monthly increase. This comes hot on the heels of a 1.2% rise in UK house prices month on month in November, in the most recent Nationwide House Price Index.
Both are sure fire indicators of a continued house price growth trend that we have seen since the middle of the year, though are we right to celebrate house growth? Is it always a good thing for the market? Richard Campo (pictured left), head of growth at mortgage and insurance practice Heron Financial, thinks not.
“I have always found it strange that we applaud house price rises that are above inflation, as if that trend continues - which it has for the last 30 years - it just makes homeownership harder for the next generation,” Campo told Mortgage Introducer.
The latest house price growth simply highlights a lack of housing stock in the UK, he reasons.
“As the market returns to normal after years of turmoil, we may find some old cycles repeating themselves,” Campo noted. “As house prices rise, lenders need to keep less capital on reserve, which means they can then lend those funds out again. This increases the amount of money available for banks to lend, which will either drive down the cost of borrowing and - or - loosen lending criteria to compete for new business. As lending gets cheaper and easier, house prices rise more - until a correction happens.”
He continued: "As house prices, especially in London and the South East, have been relatively flat for such a long period, probably going back to 2016 with the EU Referendum result, we could well have a long run ahead of us where house prices can rise.”
Gary Clarke (second from left), new build manager at The Mortgage Store, concurred there was some validity to Campo’s argument that house price growth wasn’t always good news.
“As house prices go up, then I guess it probably does make it harder,” Clarke agreed. “Nobody buys a house hoping it goes down in value. Ultimately we celebrate house prices going up because we see it as a sign of health in the market, which I think it does. I think what's always difficult is that we seem to end up with these sort of bubbles of growth, that come along in fits and starts.
“You've seen this in various generations where you've seen accelerated growth, which has benefited homeowners at that time, but ultimately it does make it that little bit more difficult for the next generation. As a father, you always worry about how your children are going to have stability in the future. If the demand is greater than the supply, then ultimately the price will go up.”
Celebration or concern? It depends…
Whether house price growth is a cause for celebration or concern depends on a variety of factors, both in the housing market and the broader economy, considers Joela Jenvey (pictured centre), mortgage and protection consultant at Nurture FS.
“While house price growth can signal a healthy market in some respects, especially for those already in the property market, it is not always a positive development especially if you are looking to buy your first home,” she said. “First-time buyers remain the bedrock of the housing market, and if their ability to buy is diminished due to affordability issues, it can stifle future demand and create market instability.”
Adaptability is key in a market that never stays still, whether property prices are up or down, suggests Jenvey.
“As brokers we will need to navigate a changing landscape, adjusting to the needs of clients who may face more challenges due to rising prices and fixed rate pricing turbulence, while still capitalising on opportunities in the more resilient parts of the market, such as professional BTL and remortgaging,” Jenvey said. “Balancing short-term opportunities with long-term risks is key to navigating the complexities of this dynamic market.”
Michelle Lawson (pictured second from right), mortgage & protection adviser at Lawson Financial, shares the view that house price growth can indicate a buoyant sector, but highlights a cause for concern.
“Too many people are now struggling with affordability, higher interest rates and less disposable income,” Lawson noted. “This is more of a regional issue. Flexible working has made location now less important for some, however prices still seem to be holding out.
“We have seen a steady rise in property prices with them being resilient even with the shocks of Covid, the Truss debacle, the election and the wars. More movement is needed in the sector and more innovation around affordability would also be welcomed.”
Read more: Stamp Duty rush – mortgage market slump could follow
Reasons to be cheerful…
Recent house price increases should be viewed with some optimism, believes David Hollingworth (pictured right), director at L&C Mortgages.
“It does underline that the housing market has been remarkably resilient over the last few years, despite the pressure of higher rates and the cost-of living crisis,” Hollingworth said.
The prospect of the base rate continuing to fall next year gives more room for positivity and should help to build confidence in the market and help improve activity, as long as there are no nasty surprises around the corner, he added, noting too that the revised Stamp Duty payment threshold will make it hard to read the level of the market, with a rush to complete before the end of March.
“So perhaps we should be initially cautious in our optimism,” Hollingworth said, “but I think there’s room for optimism nonetheless.”
