By House prices throughout the UK witnessed their biggest annual fall since 2011 according to the recent Halifax House Price Index.
The average price of a home fell by 2.6% year on year last month and by 0.1% in June – the third consecutive monthly decline – now standing at £285,932 which is £8,000 lower than last August, according to Halifax.
A predominant factor driving the decrease in property prices is the lower level of demand caused by the Bank of England’s repeated interest rate rises, with the average two-year fixed mortgage rates now sitting above 6% according to Moneyfacts, whilst the average five-year fixed rate mortgage has increased to 5.67%.
Shahram Shaida, CEO and founder of home buying and property investment platform, Allbricks, highlights the need for more options for homebuyers when purchasing a property due to the uncertainty of the mortgage market.
Allbricks provides a new way to buy a home, instead of taking out a mortgage, home buyers co-invest – starting at as little as £10,000 or 1% of the property’s value (whichever is higher) – with qualified property investors who purchase the rest of the house, providing an option with no direct exposure to mortgage interest rate rises.
From here the homebuyer pays rent on the portion they don’t own as a dividend for the investors, and regularly has the chance to buy a greater stake in their home until they own it outright.
This comes amidst a significant drop in demand in the UK property market – according to Rightmove, a third of all homes for sale in the fourth week of June were listed with discounts on their asking prices.
This was up from 18% in the same week a year earlier as the housing market continues to be affected by surging borrowing costs.
Agents and economists are bracing for a decrease in activity and prices as Nationwide revealed that the average selling price fell 3.5% in the year to June to £262,239.
Further data from trade association, UK Finance, shows that homeowners who are still prepared to purchase a property through the traditional route are taking a chance that mortgage rates will fall in the long-term with 13% of new mortgages taken out in the three months to April being variable rate deals.
Adding to this, average two-year fixed mortgage rates have risen above 6% according to Moneyfacts as the average five-year fixed rate mortgage has increased to 5.67%.
The Resolution Foundation also predicted that the average two-year fixed rate deal will hit 6.25% later this year, leaving homeowners looking to remortgage paying an average of £2,900 more from 2024, with 800,000 homeowners set to be affected.
Shahram Shaida, CEO and founder of Allbricks, comments on how the property market is being effected by rising interest rates:
“We shouldn’t be surprised that house sellers might need to reduce prices due to decreasing demand, the property market is based on this concept.
The challenge we’ve had is that we’ve linked this open market to interest rates because, for the majority of us buying a home required a mortgage.
Rising interest rates is a blunt tool for fixing the economy that hurts certain elements of the market more than others.
In reality, interest rates only directly impact about 1/3 of the UK population, only the mortgage holders.
We’ve all seen a reduction in the number of mortgages being provided to first-time buyers and for many people with 5-10% mortgages, the interest rate hikes will be incredibly impactful.
Some industry analysts predict millions of people will lose their homes because they can’t afford the repayments.
It’s also not been great for landlords.
Leveraging your debt and taking out additional mortgages to pay for new properties was the game when money was cheap, but the game has changed.
Having taken advantage of leverage when the rates started increasing works against you quickly and we’re starting to see that also hit the market.
By having another option in the marketplace that isn’t directly tied to interest rates, we believe will create the opportunity for stability and positive change. Historically we’ve seen when industries are faced with challenging times the most effective way to address those moments is with innovation.
Unsurprisingly, some of the greatest innovations have come during down-turns in the market.”
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