The housing market has seen incredible growth and activity in recent years. In the last 12 months alone, UK house prices have risen by 8.9%. However, there are signs that the Autumn market is going to signal the beginning of a drastic change. Liquid Expat Mortgages examine what this changing Autumn market will mean for UK expat and foreign national investors and mortgage products.
What Will Happen to the Property Market in the Autumn?
Much of the reason that the worsening conditions for people’s personal finances have not yet shown in the housing market is because of buyer demand. ‘Buyer demand has been incredibly high and is still 17% above the five-year average’ says Stuart Marshall of Liquid Expat Mortgages. ‘However, we’re predicting a sharp downturn in demand as we go through the Autumn. Demand has already fallen from its peak level of 54% above the five-year average that we saw in May 2022. And many factors will contribute to this continued fall in the remainder of the year.’
‘Demand is already waning in areas where property value is highest. London is one such region, with its property values rising at less than half the UK average. This is likely because of the impact that higher mortgage rates are having on demand. It is in higher-cost regions that these mortgage rate rises will be felt the most. Meanwhile, more affordable areas are currently remaining robust in their prices. Areas like Nottingham, Bournemouth, Leeds and Manchester, for example currently have year-on-year growth rates of 10.9%, 9.3%, 9.2% and 9% respectively. While the difficult conditions are likely to impact demand across all regions in the UK, those that are more affordable and with stronger demand are better prepared to weather the storm.’
‘There are two main factors that will do the most damage to the property market: the cost-of-living crisis and higher interest rates. The reason for this is that these factors are likely to affect the current main drivers of property demand. Namely, first-time buyers and higher earners.’
First-Time Buyers and High Earners.
First-time buyers are really propping up the market at the moment, with transactions from this group accounting for over a third (35%) of all property market transactions. This has contributed to above-average demand for property and, consequently, fairly robust prices. Many of these first-time buyers have been driven by the ability to work from home which has enabled them to broaden their search for property to other areas. Consequently, first-time buyers have continued to exhibit strong demand despite the average first-time buyer property rising by £33,000.
Mortgage rates are one thing that are going to do serious damage to many prospective first-time buyers. For new buyers, mortgage rates are now averaging over 4% and while this means that monthly repayments are rising, it also means that the average buyer will need to earn an extra £12,250 to buy a home.
The higher cost of borrowing will not only require first-time buyers to earn more. It will also mean that they need a larger deposit to reduce the size of their mortgage or to look towards cheaper homes. For those not willing to purchase cheaper property, it will be difficult to increase their deposit amount or increase their incomes by the amount they need.
High earners have also been active in the market, with 7 out of 10 sales earning in the middle- and upper-income bands. This is likely because higher earners have been largely immune to the effects of higher interest rates and the cost of living. However, as both the cost of living and interest rates continue to rise, the impact of these factors will start to affect higher earners too.
UK Expat and Foreign National Investors.
For UK expat and foreign national investors using UK expat and foreign national mortgage products, the autumn will bring a different investment proposition. The way this investment proposition will change will depend largely on the extent to which first-time buyers and high earners are affected by the economic conditions. ‘However, it’s likely that first-time buyers will take a significant hit given the conditions discussed above. This is key for UK expat and foreign national investors for a number of reasons. For one, first-time buyers are the single biggest buyer group in the market at the moment. With many of them unable or unwilling to purchase property, there will be much more choice for UK expat and foreign national investors. With more choice in the marketplace, properties are likely to take longer to sell and this may contribute to reduced prices. Even now, stock levels are already increasing and the time that it’s taking for property to sell is also growing – up from 19 days in April to 22 days.’
‘The other effect of having fewer first-time buyers in the market is that there are greater numbers remaining in the rental market too. With the rental market already home to fierce competition, greater numbers will only contribute to increased competition for rental properties and higher rental prices. It’s not surprising then that Zoopla report that the numbers purchasing buy-to-let are rising.’
‘With a strong rental market, reduced competition and increased choice in the property market for UK expat and foreign national investors creates a potent investment proposition. UK expats are currently benefitting from competitive specialist mortgage deals as many lenders are not passing on the full rise in interest rates. UK expats and foreign nationals are also benefitting from the favourable exchange rates they’re seeing compared to Sterling. Expert UK expat and foreign national mortgage brokers are further adding to the prospects of UK expat and foreign national investors by aiding the investment process and helping to secure exclusive deals that make investment even more attractive.’
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