New research by Bank of England economists suggests that the already declining housing market is nearing a tipping point that could trigger a full-blown collapse.
This week’s forecasts from the Office for Budget Responsibility (OBR) included grim predictions for the housing market. “Nominal housing prices are expected to decline by 7.6 percentage points from a high in the fourth quarter of 2022 to a low in the final quarter of 2024” percent. ” Because this is a nominal figure, the actual fall in prices measured relative to everything else in the economy will be significantly larger, especially now that the OBR expects inflation to remain high for an extended period of time. Last month, analysis by estate agents at Savills found that house prices have already fallen by 13.4% in real terms since March 2022.
Some may shrug and say that house prices have been aggressively overinflated for years, that there is an affordability crisis, and that safe deflation seems like the best path forward. But the question is whether it’s housing or not. can Make a soft landing.
About the Bank of England’s outstanding performance underground bank Blogs Fergus Cumming and Danny Walker suggest that this may not be possible. They calculate that a 10% drop in prices (in nominal terms) would change the mortgage calculations for many people, leading to even steeper mortgage rates for hundreds of thousands of homeowners.
This will look like this: Let’s say that in 2022 he buys a house for £300,000, with a £220,000 mortgage that he fixes for two years. Since we borrowed less than 75 percent of the home’s value, this seemed fairly low risk to the bank and gave us an affordable interest rate. However, if the house price fell by 10% in his two years to £270,000, then when refinancing his mortgage he would take out a loan worth 81% of the house price. Mortgages become more expensive when the loan-to-value ratio exceeds 75%.
Based on analysis of owner-occupied mortgage data, Cumming and Walker say this is a situation that affects 350,000 households, resulting in these homeowners paying £2.4 billion a year (on average He said he would have to pay an additional £2,000. “This could have significant economic implications,” they note.
Jeremy Hunt’s autumn statement includes measures to stimulate supply to the depressed housing market, making it easier for homeowners to convert their homes into flats and making planning applications faster The government plans to invest in speeding up environmental assessments. He may be saving the rumored stamp duty cut until this spring to give homebuying voters a dose of sugar before the May election.
Content from partners
But such tinkering is supported by monetary policy (cheap debt artificially created by quantitative easing and low interest rates) and fiscal policy (such as making Help to Buy’s £29bn even cheaper). It does little or nothing to change the fundamentals of an inflated market. loan). Home builders build products for the market, not for policy. Just because there are more opportunities to pollute rivers doesn’t mean there will be a surge of new activity.
And as home ownership becomes increasingly expensive, the pressure on renters (who are often just financing someone else’s debt) is increasing.
Mr Hunt has already met with lenders and advocates such as Martin Lewis to discuss mortgage forbearance measures, but more ideas may be needed. A (bigger) surge in house sales and repossessions will only exacerbate the decline in prices and bring the UK closer to a repeat of the crash of the early 1990s. There were 75,500 foreclosures in 1991 alone; A total of 387,800 people were left homeless in 1997. For one group of voters, the ‘Tory mortgage penalty’ could be even more costly.