This month’s mini-budget saw the pound drop to its lowest value against the dollar after the government announced tax cuts and an energy price cap. Although there has been a stamp duty cut in England we are yet to see if Holyrood makes the same cuts for LBTT to help buyers in Scotland.

In response to the budget announcement, the Bank of England announced that it would act to mitigate the effects of the budget on the market, potentially raising interest rates over the next few months. Market commentators believe that they could  hit 6% by next spring. in response, mortgage companies withdrew products whilst the picture became clear. So, what can buyers do to keep their costs down?

Market stats

Mortgage approvals for purchases have increased by 17% month on month in August, according to the Bank of England, showing some resilience in the market. This is the highest level since the start of 2022 when mortgage approvals were higher than the pre-pandemic average. This followed a trend showing buyers securing a deal before interest rates went up.

Cost-of-living

At present, the cost-of-living squeeze, rising energy prices and rising interest rates have meant that confidence is at an all-time low. Rising mortgage rates are set to have the most significant impact on areas where homes are already at the higher end of the market or where house prices have surged the most over the last two years.

Most people with a mortgage are on a fixed rate, but many people are coming to the end of their deal in the next 12 months or are considering purchasing a first home. These people are concerned about what this means for their outgoings.

Research from Zoopla shows that higher mortgage rates will reduce buying power by as much as 28% as rates rise from 2% to 5%, with the impact likely to last until 2023.

What can you do to combat the rising costs of purchasing a property? The first step is to put down as large a deposit as you can – if you can borrow from a parent or grandparent, this will help to keep your mortgage repayments down and improve your borrowing power.

Another sensible step is to adjust your search by area – moving to a less expensive place or choosing a smaller, more affordable home. Finally, you could wait it out and see how things are by the spring, but with rates going up, this is a gamble.

The average value of a home rose by 8.2% over the last 12 months, and although the quarterly growth rate is slowing, there are no immediate signs of a significant slowdown in price inflation. Higher mortgage rates will have the most impact on activity in these higher-value markets and areas which have registered the most significant surge in prices over the last two years.

Since the pandemic in March 2020 when the property market effectively shut down, we have seen an imbalance between the number of homes for sale and demand from buyers.

Our priorities over the last few years have changed drastically and this means that what we want and need from our homes has also changed. Home working has become the norm whether full time or on a hybrid basis, so buyers have required more space by way of a garden room or spare bedroom for an office. Outside space has also become more important as we have all spent much more time at home. This pandemic-induced race for space was further affected by the stamp duty holiday and now, buyers are rushing to complete sales before already-high interest rates rise again.

Against this backdrop, according to the Royal Institution of Chartered Surveyors (RICS) monthly survey, enquiries from buyers have fallen at its sharpest pace since the start of the pandemic due to pressure from interest rate rises and a surge in inflation and the cost of living. It was the fourth consecutive month that buyer enquiries fell. The slowdown in the number of homes coming to the market pushed up stock levels to 34 properties per branch – the lowest level since records began – as a comparison, in 1990 stock reached 200 per branch.

Meanwhile, 53% of survey respondents reported a rise in house prices and since the start of the pandemic, house prices across the UK have risen by nearly 25%.

Prices Unaffected by the Cost-of-Living Crisis

According to Halifax, property are still rising against a backdrop of rising energy prices, interest rate rises and record high inflation. The average price of a home has risen by 0.4% taking the annual rate of property price growth to 11.5% or more than £30,000.

Interest rates

Interest rates are currently at a five-year peak after six consecutive increases since December and the Bank of England is expected to raise them again in the next announcement. Commentators at Capital Economics believe that property prices could fall by 7% as borrowing cost and affordability checks weighed on demand.

At present, there are more first-time buyers than any other buying group in the market today. In fact, property interest from first-time buyers is 46% higher than it was last year. There have been 177,000 transactions from this buying group so far this year alone.

However, with mortgage rates rising to 4% this means that first-time buyers will need on average £12,250 more income to secure a mortgage. Therefore, it’s important to consider how you can offset these rate rises to be able to get onto the property market.

Property type

Following the pandemic, buyers are looking for larger homes to accommodate home or hybrid working. Over half of the enquiries are for three-bedroom homes, which are currently 10% higher than they were in August last year.

Zoopla data shows that buyers are now expanding their location search, seeking properties that are further afield in cheaper areas. This means that they are buy a home sooner as they spend less time saving for a deposit – whilst also avoiding any future rate rises whilst they save.

Interest rates

The economic situation doesn’t seem to be dampening appetite for first homes – but further rises in interest rates may have an impact. August levels have been lower than normal but this is typical of the summer slowdown we see every year.

If you are a first time buyer, moving from a 2% mortgage rate to 4% means that you will require an extra £12,250 in income to secure a mortgage offer. This is outside of London – if you live in London, you’ll require an average £34,500 which is a huge stretch for many.

Renting versus buying

And at the moment, buyers are saving an average of £200 by paying a mortgage with a mortgage rate of 2.5% rate as opposed to renting. Even with a 4% interest rate, it is still cheaper to pay a mortgage in most places in the UK.

Offset rate rises

If you are a first-time buyer, there are several things you can do to offset interest rate rises.

Broaden your area – consider being more flexible on location as properties tend to be cheaper if you live outside major cities. This means your monthly repayments will be smaller and you’ll pay less interest.

Boost savings – you’ll see an increase in the rates on your savings or ISA if you’re on a carriable rate but shop around to see what interest rates people are offering helping you to save faster.

Check schemes – There are several schemes that could help you to get onto the property ladder.

Talk to family – can your family help with a larger deposit? This will help you to offset rising rates.

Get sound mortgage advice – It’s important to understand how different types of mortgages are impacted by the rate changes. An independent mortgage broker will help you to find the best mortgage for your circumstances – you could also extend your mortgage term depending on your age, this will keep your repayments down.

Last week Ofgem announced that the energy price cap was rising from £1,277 at the start of the year to £3,549 from October 1^st.

Lack of supply and increased demand has pushed prices up higher than anyone could have anticipated. With the war in Ukraine putting sanctions on gas and electricity supply from Russia (Russian imports accounted for half of Europe’s fuel supplies) along with an increase in economic activity after the end of Covid19 restrictions, as well as a cold winter in Europe and hot summer in Asia leading to an increase in electricity consumption, we have seen a perfect storm leading to these rises.

The rising cost of energy has also had an impact on the mortgage market, so here are some tips on how to ensure you qualify for a mortgage deal.

Lenders will be factoring in your energy costs when looking at affordability calculations and it could affect the amount they are willing to lend. It’s essential that you have room in your budget to cope with further rises.

The rising cost of living could make it more difficult to secure a mortgage especially if your budget is too tight to cope with further energy price rises. However, mortgage stress testing has eased over the last year. Previously, anyone who applied for a mortgage or remortgage, needed to show that they could afford mortgage repayments if the mortgage rate was 6% or 7%. This requirement has now been removed giving greater flexibility to borrowers.

The mortgage affordability rules tend to affect first-time buyers and those on a low income, and this group will be more affected by energy rises. Those on a high income will be less affected.

Mortgage rates are rising as a result of the Bank of England’s base rate rises since December. The cost of a 2-year fixed rate mortgage has jumped from below 2% to over 4%. With an uncertain economic outlook lenders tend to reduce the availability of loans at higher loan-to-value ratios.

What can you do?

There are ways to make you more attractive to lenders:

• Cut back on unnecessary spending and reduce your credit cards, loans and store cards where possible.
• Remove any monthly subscriptions such as Netflix, Prime, gym membership etc.
• Pay off credit cards or reduce your balance to under 50% of the available credit.

The rising energy price and increase in cost of living isn’t expected to trigger a house price crash but instead, house prices could slow down following two years of rises. The majority of homeowners on a fixed rate deal won’t be affected by the rise in interest rates.

Every year in August the housing market quietens down. In fact, over the last ten years there has been a slight fall every year around this time. According to Zoopla, the average house price fell by £5,000 this month, but that doesn’t mean house prices are going to start falling further for the rest of this year.

House prices are currently rising faster than the five-year average according to the property portal and the average house price is now at £256,600 with the most gains seen in the UK’s most affordable markets. The portal predicts a 5% growth for the rest of this year and this is despite the rising cost of living and interest rate hikes.

Over the last 12 months, UK house prices have risen by 8.3%. This rate is slower than the rate of growth we saw in March at 9.6% year-on-year. Despite mortgage rates on the rise and the pressure of high inflation and a high cost of living, there are plenty of buyers wanting to move now. Demand has slowed a little, but it is still 25% higher than the five-year average.

The housing market is still strong and showing signs of resilience – and Zoopla has now predicted higher house price growth than previously thought. The UK is likely to hit 1.3 million sales this year and we can expect normal levels of activity as we head towards 2023.

Demand is still high and there still isn’t enough stock, but the number of homes for sale is recovering after an exceptional two years following the start of the pandemic.
Strong gains can be seen in the most affordable areas of the UK with values rising the fastest in Wales, up 11.1%. In Scotland values are rising at around 7.5% and 5.6% in Glasgow.

London is still the UK’s most unaffordable housing market with prices rising just 4% year-on-year. Aberdeen remains the only city that has experienced negative house price growth over the last 12 months, with house prices down -1.6%.

According to the latest figures from Zoopla, the housing market is experiencing strong growth. For the sixth month in a row, asking prices in the UK have continued to increase rising by 0.4% taking the UK average to £369,968.

As we move to the second half of the year, Zoopla has revealed that the market is starting to slow down, and we are seeing less frenzied activity as the cost-of-living crisis trickles through to the property market. Buyer demand has fallen slightly compared to busy market since the property market opened back up in 2020. Supply is improving too, with more people putting their homes on the market compared to the same period a year ago.

This is good news for the property market – not only will you get a good price for your home when selling as prices are still rising, but it means that when you then look to purchase your next home you will have more choice with easing competition for every house listed. Although there is more choice, it is still well below the levels of available property we saw in 2019. However, the property market is moving fastest in Glasgow with the average home only taking 20 days to sell.

The house price gains we saw over the last two years along with increasing interest rates and the rise in the cost of living could mean that house price growth slows down over the second half of this year. Monthly mortgage payments have gone up since December with five interest rate rises and the average income needed to secure a mortgage on a home has also gone up.

This pressure on homebuyer’s budgets and economic constraints mean that it’s those with greater disposable income that are driving activity within the housing market. However, they too are likely to be affected by the economic outlook later this year as fuel bills are set to rise and it is predicted that we will have even more interest rate rises.

Despite this, Zoopla has revealed its house price predictions – anticipating that the average house price will rise by 7% by the end of 2022 which is an amendment from the previous figure of 5%, forecasted at the start of the year.

Recent reports show that house prices across the UK were 12.8% higher in May compared to the previous, year taking the average house price in the UK to £283,496.

The data from the HM Land Registry House Price Index also revealed that house prices in the UK have risen by 1.2% since April 2022. These figures are against a backdrop of inflation reaching 9.4% in June, a 40-year high.

This latest rise in inflation has been driven by a 42.3% rise in the price of fuel year-on-year along with a 9.8% increase in the price of food and non-alcoholic drinks. The current economic conditions will begin to affect the housing market with a slowdown in the high growth we have seen over recent years. Rising mortgage rates and the increase in the cost of living will start to affect demand for the rest of the year. However, there is still a lack of supply in the housing market, and this will support prices even as there is pressure on household finances. Addressing the issue of limited stock is key, but a dip in demand over the next few months could see a slowdown in the housing market over the next few months. Energy price rises in October could further hamper the market with a reversal of prices in the autumn.

Here in Scotland, we saw an average 8.4% increase in house prices taking it to £220,870 in the year to May. This is the eleventh time prices have risen in the last twelve months taking the average house price £17,100 higher than the same period last year. There were 9,092 property transactions in 2022, this is the second-highest number of deals in this month over the last decade and with the highest number of May deals taking place before the pandemic in 2019.

Housing stock value

The value of homes in the UK is currently over £10 trillion resulting from a lack of supply which continues to drive up house prices. According to Zoopla, the value of housing stock has gone up by 15% (£1.3 trillion) since just before the start of lockdown in February 2020. This means that the average homeowner has ntted £48 per day in capital gains.

The report estimates or 32% of all properties (9.4 million homes), have grown in value by more than £50,000. Given that the average UK household income is £34,100 it means that house prices are generating more cash than salaries.

Buyer enquiries fell in May of this year whilst the increase in our cost of living and rising interest rates are only having a modest effect on house prices, according to the Royal Institution of Chartered Surveyors (RiCS). RiCS survey participants also forecast that, in the short term, house prices will rise.

The recent UK Residential Market Survey shows that buyer enquiries fell by 1% in May compared to the previous month, bringing an end to eight consecutive months of increases in buyer enquiries. Survey participants believe that this slight shift is due to the public showing a reluctance to spend money because of the current cost of living crisis.

There was little movement in the statistics for sales agreed and the forecasts over the next three months is expected to remain stable. Over the next year, it is believed that the number of sales agreed will fall.

The Report says: “There seems to be little respite for lack of supply in the future, with respondents citing the weakest picture since December 2021 for new/requested market appraisals. This suggests there is little prospect of more homes coming onto the market in the immediate future.”

The study also highlights that house prices will continue to rise given the continued lack of supply with 73% surveyed reporting an increase in house prices during May. All parts of the UK continued to see rising prices.

The last three months is a strong indicator for the next year, and at present we can expect price expectations to continue to ease off as they have done since March. However, 42% of survey participants still believe that house prices will be higher in a year’s time. In February of this year, 78% of survey participants believed that house prices will be higher in 2023.

The Royal Institution of Chartered Surveyors chief economist Simon Rubinsohn says: “The increase in the cost of mortgage finance alongside growing concerns about the economic outlook is unsurprisingly having an impact, albeit a relatively modest one at this point, on buyer activity in the sales market.

“Despite this, prices are viewed as likely to remain resilient into 2023. But as is often the case in these circumstances, the pressure is likely to felt more visibly in transaction levels which are seen as likely to slow as the year wears on.”

“Meanwhile, what is particularly striking in the latest Rics survey is both the current and anticipated strength in the rental market. New instructions of property to let continue to fall according to respondents to the survey while demand is still very strong leading to rental levels being bid higher and greater challenges for tenants who aren’t in the position to compete for the available stock.”

Although the housing market is showing no signs of slowing down and demand is far outweighing supply, it doesn’t mean you can’t still maximise the value of your home by giving the best possible ‘first impression’.

The first thing that a potential buyer sees when they are looking to view your home is the outside. How smart is your brickwork and paintwork? Do you have window sills flaking with paint? Do you have moss growing on your roof? Is your garden overgrown or has your front door seen better days?

All of these features can add to the appeal of your home – especially as buyers are currently stretched in their budgets and less likely to have an additional budget for home improvements.

The outside of your property acts as an advertisement for what’s inside – so take a look at the outside of your home and decide if it looks like the sort of place, you’d feel that you could move in and be instantly proud. Here are some tips on maximising the kerb appeal of your home.

Front door

This is the first contact buyers will have with your home – it needs to create a positive impression. If it’s made of wood, make sure that the paint isn’t flaking off and that it has a fresh coat in a popular colour such as navy, charcoal grey or black. If your door furniture has been better days, this is a quick way to instantly give it a makeover. If your door is PVC  either replace it or give it a good clean. For composite doors, make sure there’s no erosion and if you do see any, invest in some specialist products and paint to smarten it up. Also consider a smart slate or metal number plate and new outside wall light.

Paths and driveway

If you have a paved or concrete driveway or path, it could be transformed with a good jet wash. Over time it can become dark with weeds and discolouration. Hire a jet wash machine or even hire a professional – it could make a huge difference. If you have wooden decking take care not to use it as this can damage the wood, but it would also work on walls and garden patios.

Neaten up the boundary

It’s important to have smart, clear boundaries in your front and rear garden. Not only does this give a clear indication of where your plot ends, it will also make your property appear cared for. Give any wooden or iron fencing a lick of paint, neaten up grass verges and remove any weeds from flower beds. Trim any large bushes and make sure any gates and locks are in good working order.

Hide bins away

Make sure that your bins are stored neatly and in a location that isn’t immediately obvious. If they are overflowing with cardboard, make sure you get rid of this before any viewings take place. If your wheelie bins are in bad shape, talk to the council about getting these replaced. Consider a bin tidy to keep them completely hidden.

Colourful plants

Investing in some beautiful flowers and plants in the summer months can do wonders for your front and rear garden. Either plant them in flower beds or place potted plants around in the area – and remember any pots and baskets can be taken with you when you move. Hanging baskets and tubs can by your front door can make your home look warm and welcoming. Also ensure that your lawn is short and neat and there are no weeds anywhere.

Cleaning your windows

Hire a window cleaner or use suitable products to leave your windows clean and streak-free. Wash any window frames and consider giving them a coat of paint if they are wood.

Lighting

Wall lights can brighten the area around the door and make it look warm and inviting, especially when selling in the autumn or winter. You could also purchase solar lights along your pathway – again they can be taken with you when you move.

A working doorbell

If you have doorbell that doesn’t work, invest in a new one, otherwise it creates the impression that it may not be the only thing that isn’t working in the home!