This is Home Front with Vicky Spratt, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here.
In life, you (like me) will have found that there are often tradeoffs. Yes, you can have that last glass of wine, but you will have a headache tomorrow. Good stuff often comes at a cost.
The same is true of falling house prices which, according to new data from the property listings site Zoopla, have now fallen in almost every part of the UK compared to where they stood in 2022.
This time last year house prices were rising at a rate of 9.2 per cent – this is known as house price inflation (HPI). Now HPI is declining by 1.1 per cent.
For context, this is the sharpest and most stark year-on-yearfalling house price growth since the immediate aftermath of the global financial crisis in 2008.
Call it a housing market downturn, realignment, crash or correction, the fact is that house prices are coming down slowly.
As the experts over at Capital Economics recently pointed out, “renewed weakness in the housing market” could be good news for persistently high consumer inflation, which the Bank of England has been trying to control by hiking interest rates over the past 18 months. This is because homeowners’ housing costs are factored into overall consumer inflation (CPI). If they come down, inflation will too. And if inflation comes down, the Bank of England could eventually bring their interest rate down, possibly spelling an end to high mortgage interest costs.
However, I’m here to warn you that there is, indeed, a tradeoff.
Falling HPI and falling house prices will have more wide-ranging consequences for those who bought expensive homes when house prices were particularly high because they might now be worth less (negative equity). And sadly, there will also be consequences for our economy as a whole because of our reliance on HPI for housebuilding and economic growth.
Britain’s housing market is now exactly where housing experts such as former Shelter adviser Rose Grayston, market analyst Neal Hudson and Toby Lloyd, a former housing adviser to Theresa May, feared it would be in February when they issued a stark warning: completely stalled.
Mortgage rates may have stabilised (for now) with the average two-year fixed rate at around 5 per cent according to Moneyfacts.
But the housing market is stalled because there is very little going on: People aren’t really buying or selling.
The latest Bank of England mortgage approvals data show that the number of mortgages getting over the line and completing (also known as transactions) fell even further to around 43,300 in September compared to 45,500 in August.
Crucially, that’s down by around a third compared to 2022.
This is also backed up by new data on transactions from HMRC, which were published this morning. The provisional seasonally adjusted estimate of the number of UK residential transactions in September 2023 is 85,610, 17 per cent lower than in September 2022.
Some experts will argue that everything is fine, as Zoopla’s Richard Donell has done on X (formerly known as Twitter) this morning. He’s hoping that it will just take a little bit of time for calmer mortgage rates to feed through into affordability in the housing market to get things moving again.
Perhaps he will be proven right. But I’d suggest paying attention to the Bank of England’s data. The number of transactions is now so low that last month, the value of existing mortgage repayments (debt) was greater than the value of new mortgages taken out.
We haven’t seen this scenario since the 2008-11 post-crisis housing market downturn.
This means that banks aren’t going to be making as much money and, as I’ve reported before, our economy relies heavily on mortgage lending. Don’t take my word for it. It’s listed on the Bank of England’s website where they say rising house prices are good because homeowners feel more confident and will “borrow more against the value of their home, either to spend on goods and services, renovate their house, supplement their pension, or pay off other debt”.
The Government is in a bind, which will go on way beyond the next general election.
Ministers want to get core inflation down. The Bank of England had to hike interest rates to do that. But this has contributed to a housing market downturn (as I have written that it would), the scale of which is not clear yet and may not be for some time.
On balance, this could be seen as good. Homes were unaffordable and something had to give. But it is also painful. Some people (myself included) are finding their homes are worth less than they paid for them (negative equity). The issue of negative equity may not be as bad as it was in the 1990s when mortgage lending was less well regulated.
Nonetheless, mortgages are more expensive than they’ve been in a decade, banks aren’t lending as much and fewer people are moving. And, above all, it is very difficult to resolve because even building social housing in this country (via something called Section 106, which forces private developers to contribute non-market housing when they build homes for private sale) is funded by the profits made from rising house prices in an overheated market.
The Bank of England will make another interest rate decision this Thursday. It is widely expected to keep the base rate where it is, at 5.25 per cent. If that happens, house prices will likely keep falling and the market will remain slow as buyers wait and hope that rates will come down further.
Decades of political inaction on house price affordability has led Britain to a housing policy cul-de-sac. We need a way out. I’m regularly hearing from both Conservative and Labour politicians and their advisers who know this. I don’t envy them the undeniably difficult task of figuring it out.
Key Housing
I’d like to draw your attention to two things this week.
Firstly, some good(ish) news. Leasehold reform will be in the King’s Speech next week. This is good news because the onerous leasehold/freehold system is outdated modern feudalism, which denies homeowners autonomy and sees them being hit with bills that often make no sense.
The housing minister, Rachel Maclean, has also confirmed that all ground rents – not just those for new properties – will be capped at a very low level (details to follow).
It’s only good(ish) because this reform has been on the table for years and Housing Secretary Michael Gove has been forced to battle to get it over the line. And it’s not quite as radical as some had hoped. There are still question marks over whether the leasehold/freehold system will ever be entirely overhauled and turned into something more akin to Australia’s commonhold model which many campaigners favour because it eliminates freeholders all together and gives homeowners the right to jointly own and manage the building their home is in.
Ask me anything
A reader has written to me via my Instagram to present a dilemma which has sadly become very common since the tragic Grenfell Tower fire.
“I am selling my leasehold flat whose lease qualifies under schedule 8 of the Building Safety Act 2022 which requires the freeholder’s certificate to prove that no dangerous building materials were used. My freeholder is refusing to provide this documentation which is putting my sale at risk. They are legally obligated to complete this but won’t do it. I feel like I’m being held hostage. Help!”
I hear this sort of thing all the time. It’s not allowed but it happens, which is why leasehold reform is needed.
If this happens to you, I’d suggest writing directly to the Department of Levelling Up, Housing and Communities to tell them about your freeholder and checking out the Leasehold Advisory Service for advice and support.
Ask your question via Twitter @Victoria_Spratt, Instagram @vicky.spratt or email vicky.spratt@inews.co.uk
Vicky’s pick
More and more young women writers are upending cinematic tropes in film and TV. The team behind one of my favourite examples of this, Shiva Baby, which was once best described as a “funny panic attack of a movie” has just released a new queer teen drama called Bottoms which is hilarious, forward-thinking and brilliant. Shiva Baby was about a Jewish, bisexual college student who attends a shiva with her parents, where she collides with her ex-girlfriend and married sugar daddy. I won’t give you any spoilers, but Bottoms is the story of what happens in a world where there are no consequences.
This is Home Front with Vicky Spratt, a subscriber-only newsletter from i. If you’d like to get this direct to your inbox, every single week, you can sign up here.
