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Should buyers hold out for better market conditions?

In the wake of last autumn’s disastrous Mini Budget, the housing market has been undergoing a gradual readjustment. So what does this mean for your clients who are wondering whether they should purchase now or hold off until conditions improve?

Well, let’s take a closer look at where we are right now.

The first factor to note is that while house prices have continued to go up over the last six months, the rate of house price inflation is slowing down. 

As data from the Office for National Statistics (ONS) shows, average UK house prices went up by 9.3 per cent in the year to December 2022, but the rate of increase was just 6.3 per cent in the year to January 2023.

That means the average house price stood at £290,000 at the start of the year - £17,000 higher than it was at the beginning of 2022. So despite the slowdown in house price inflation, affordability pressures still exist for many people.

Another big change during this period - even before the Mini Budget sent the market into a tailspin - was a gradual rise in interest rates. In fact, the Bank of England raised interest rates for the 11th consecutive time in March, placing them at 4.25 per cent - and this is having a particularly big impact on those seeking to get on the property ladder for the first time.

The average price paid by first-time buyers fell by 1.5 per cent between December and January, whereas there was a much smaller fall in the average price paid by home movers. That reflects the challenges that rising borrowing costs are placing on first-time buyers right now, while those who are simply moving to a new property will have benefited from strong house price growth in previous years and could borrow at lower loan to income ratios.

Fast-changing market conditions

Interest rates have been going up in an effort to curb soaring inflation, and although there were cautious hopes at the turn of the year that the situation was starting to improve, we saw a surprise jump in inflation in February, which has compounded the pressure on people’s finances.

Although many analysts expect inflation to halve this year, this unexpected increase suggests the journey to that point may not be as smooth as some will have thought.

At the same time, hard-pressed consumers are having to weigh up the impact of recent government policies. For example, the income tax personal allowance and higher rate thresholds are being frozen until April 2028, which will pull more people into the income tax system for the first time, or into higher tax bands over the next few years.

We’ve also seen in the recent Budget that while the government is extending 30 hours of free childcare to children over nine months old, this will only happen gradually over the next few years, so the announcement offered no immediate relief to parents who are struggling with high childcare costs. Additionally, the Budget didn’t include any mention of steps being taken to boost the property market.

We should also point out the added complication of the recent collapse of Silicon Valley Bank and the takeover of Credit Suisse by UBS, which has sent the swap rates used by banks and building societies tumbling.

On the one hand, these events have led to concern among some about a new banking crisis being just around the corner, but on the other, this has led to better mortgage rates that buyers could take advantage of right now.

What is all this doing to buyers?

Amid all this uncertainty and huge changes in the economic environment, many people will be confused about what to do next and when. 

Research by OnTheMarket in February showed no major shifts in consumer behaviour and sentiment. For example, 69 per cent of buyers were confident they’d buy within three months, the same percentage as in January, and 62 per cent of sellers were confident that they would sell their property within the next three months, up from 60 per cent in January.

But this survey was carried out before the March Budget and the recent difficulties that we’ve seen in the banking industry.

Of course, you can only advise people based on how market conditions are right now, as you can’t confidently predict the future. That in turn means consumers must think about what is right for them at this specific moment in time.

But the one certainty is that borrowers need specialist advice more than ever, with a professional, regulated expert in this field helping them navigate their way through this ever-changing environment.

As an intermediary, you can add extra value by offering or showing them where they can get financial advice on other matters. For example, you could diversify into areas such as protection insurance, as this can underpin many aspects of financial planning, from mortgages to estate planning.

Looking at a person’s finances in the round, particularly during this turbulent period, could be the key to helping clients make the right financial decisions.

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