The 2023 Property Crash That Cried Wolf and the Pundits Who Predicted Peril

The Predictions

In January 2023, the world was predicting house price crashes of 8% to 15%.

So what are the reasons behind the unexpected resilience of the housing market despite dire forecasts?

Even with average mortgage rates climbing from just over 2% to over 6% in the last two years, house prices haven't plummeted as anticipated.

The Facts

This defiance against more significant falls is attributed to three key factors:

1. Labour Market & Earnings: The UK's strong labour market and a 7.3% increase in average earnings have given British households the financial security necessary to handle mortgage payments, even in the face of rising rates.

2. Lender Restraint: In an effort to assist struggling British households with repayments, lenders have implemented policies to reduce the number of forced sellers and uphold market stability. This strategic move not only benefits borrowers but also contributes to a more resilient and balanced housing market.

3. Mortgage Affordability Stress Testing: One of the biggest game-changers in the mortgage industry has been the implementation of stricter affordability tests for new borrowers since April 2014. These tests, also known as the Mortgage Market Review tests, have significantly impacted the way lenders evaluate potential borrowers' ability to repay their loans.

These 'stress test' regulations were created to stop British households from diving headfirst into massive mortgages when interest rates are low. These rules have played a crucial role in preventing a major housing disaster, like the ones we saw in 1988 and 2008 when people borrowed way more than they could handle, causing house prices to skyrocket. Stress tests also have the bonus of preparing homeowners for higher interest rates, helping them navigate the shift without breaking a sweat. So, next time you're stressing about your mortgage, just remember - these regulations have got your back!

For example, while the average interest rate for new mortgage borrowers has plummeted from approximately 4% in the fall of 2014 to just under 2% in the fall of 2021, borrowers still had to demonstrate they could handle a 6.5% to 7% mortgage rate to secure that loan during that period. As interest rates have climbed in recent years, stress levels have spiked to an average of 8.7% (meaning borrowers now need to prove they can handle a mortgage rate of 8.7%).

What has actually happened?

According to the latest data from Rightmove, asking prices have increased by 0.1% nationally over the past 12 months, but the real surprise lies in the local market. In Richmond, Twickenham and Teddington prices have surged by 5.1% during the same period. However, this is just a fraction of the whole story. The main challenge facing the property market today is the severe shortage of available properties. If you are thinking about making a move, you have probably already noticed the limited options out there. Don't let this deter you though, as there are still opportunities to be found.

At Bartlett & Partners, we consistently monitor market trends, local insights, and property data to guarantee that you achieve outstanding results when partnering with us. If you are contemplating a move and are curious about how this impacts you, we invite you to engage in a conversation with us. You can either contact us at 02086141441 or schedule a valuation visit by clicking this link.

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