6 May 1, 2022The Sunday Times
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some of the country’s biggest
mortgage lenders, including
TSB and Santander, adjusted
their affordability calculators
to take account of the rising
cost of living. National
insurance rates rose 1.25 per
cent last month and energy
bills soared as the war in
Ukraine raged on.
Last week the chancellor,
Rishi Sunak, told the cabinet
that interest rates were
expected to rise to 2.5 per cent
over the next year, warning
that an extra 1 percentage
point rise on a typical variable-
rate mortgage would cost
borrowers £700 a year more.
There are some who think that
with energy prices predicted
to rise by up to 40 per cent in
October, inflation and interest
rates could go even higher,
bringing pain to property
buyers and mortgage payers.
Just how bad could it get?
Capital Economics, a
consultancy, predicts that
inflation will peak at 10 per
cent later this year. This, it says,
will push the bank interest
rate from 0.75 per cent to a
peak of 3 per cent next year,
causing house prices to fall
about 5 per cent across 2023
and 2024 as buyers can afford
less. “This would reverse just
over a fifth of the surge in
prices since the pandemic
began,” said Andrew Wishart,
Capital’s property economist.
The average UK house price
gained £44,673 between
February 2019 and February
2022, according to the ONS. If
Wishart’s prediction is right,
that would reduce by £9,000.
“Lenders have been slow to
pass on rising interest rates so
far, so we expect a sharp rise
in mortgage rates in the
months ahead,” he says.
“We expect the average rate
on new mortgages to rise from
1.8 per cent in the first quarter
of this year to 3.3 per cent by
the end of 2022 and to a peak
of 3.6 per cent in 2023. That
would be the sharpest rise in
mortgage rates since 1990,
consistent with an abrupt
slowdown in house price
inflation.”
Lenders are catching on:
last week several of them
announced higher rates in
anticipation of a 0.25
percentage point rise in the
bank rate on Thursday.
Santander hiked rates by 0.55
percentage points.
Wishart is keen, though, to
scotch talk of a house price
crash. “We are not expecting a
repeat of either 2008 or 1990,
when house prices fell by
about 20 per cent,” he says.
There is some good news
for borrowers, though. Banks
are relaxing the salary
multiples on which they will
lend. TSB announced last
week that it will lend on five
times income, up from 4.75.
First-time buyers will still need
to find hefty deposits to get on
to the property ladder but it
looks like banks may be more
flexible on what they are
willing to lend in the future.
That will ease the pressure on
the property market.on average, according to new
data from the independent
property analysts TwentyCi.
Three to four months later, the
sale is registered with the
Land Registry.
All of which means that
asking prices often appear out
of step with prices paid. For
example, the average sold
price in February was £275,755,
according to the Office for
National Statistics (ONS), yet
the average asking price was
£348,804, according to the
property portal Rightmove.
In March, asking prices rose
to £354,564 and then last
month jumped again to
£360,101. Two years of ever-
higher asking prices, and a
record three-month increase
of £19,082 since January, have
seduced sellers into thinking
that the only way is up.
Jonathan Harris, the
managing director of Forensic
Property Finance, a mortgage
broker, says: “There is a
degree of caution being
displayed by valuers. We are
seeing down-valuations where
valuers are nervous to value in
line with current market
prices. While house prices
continue to rise at such a pace,
valuers are aware of potential
professional indemnity claims
against them if they are too
bullish on values.”
They are right to be
cautious, because the bull run
is losing steam. Last weekI
magine that after a
fierce bidding war you
accept an offer from a
potential buyer of
£5 million, a decent
return on a home you bought
for £4.25 million a few years
ago. Then last week the
buyer’s valuer announces that
in his opinion it’s now worth
£3.5 million — a full £750,000
less than you paid for it,
despite a red-hot property
market in which prices are
soaring ever higher.
In the same week another
seller was left scratching their
head after being told that their
house was worth £700,000
not £900,000, even though
the estate agent reassured
them that similar properties in
the neighbourhood were
selling for close to £1 million.
What’s going on?
The housing market’s
rollercoaster ride is continuing
with a new twist: prices go
down as well as up. Average
property prices have risen
12 per cent in the past year
according to Nationwide, a
consequence of an enduring
supply-demand imbalance in
which the number of homes
for sale is down by a third
since the pandemic started.
Stories of competitive
bidding and gazumping are
still rife — followed, now, by
those of “down-valuations”.
“We have seen a fair
number of down-valuationsrecently, £30,000 or £40,000
here and there, although there
have been a couple of larger
ones [including the two
examples above]. Probably
about 1 in 30 loans are
affected,” says Chris Sykes, a
director at Private Finance
mortgage brokers.
“I think it is because the
market is so busy and a lot of
people are paying over the
asking price, plus the sold
price takes so long to make its
way on to Land Registry
records. It can sometimes be
nine months since an offer was
agreed, so the valuers don’t
have the data to go on.”
It typically takes 16 days for
a seller to accept an offer on a
property but 22 weeks for the
buyer to complete, during
which time the value of the
house will have risen £26,000One in 30 property sales may now suffer a
down-valution. Carol Lewis investigates the
latest twist in the rollercoaster housing market
Above: a Bristol
townhouse is for
sale for £1.295
million via Rupert
Oliver. Right: an
Arts and Crafts
home in West
Yorkshire is for
sale for £2.2
million with
Beadnall Copley.
Below: Hayton
Castle in
Cumbria is on the
market for
£800,000 via
H&H Land &
EstatesPICTURES FOR ILLUSTRATIVE PUROPSES ONLY. GETTY IMAGESLenders have been
slow to pass on
rising interest rates
so far, so we expect
a sharp rise in
mortgage rates in
the months aheadDOWNWARD DIP?