The Residential Expert - October 2022
Lots has happened since we last spoke with industry guru Mark Hayward in September, leaving us with loads of questions about the state of the industry. So what better way to catch up than with a jam-packed conversation with the property expert?
Stacks has happened since we convened one month ago. The country has a new monarch, Just Move In has a new website, and the media has a new crisis to talk about hysterically. Fear is at fever pitch: if Vladimir Putin doesn’t get you then the mortgage crisis will. Sigh. Why is the news always so negative?
Fortunately, Just Move In’s Residential Expert, Mark Hayward, is here to cut through the noise and keep everything in perspective. Yes, the economic outlook isn’t great at the moment, and the government has some tough choices to make, but there’s no need to panic. Our industry guru is on it.
JMI: Hello Mark. How’s tricks? So much has happened since we last spoke.
Mark: Indeed it has. It’s a completely different landscape to a month ago. It’s shocking that things can change so quickly.
JMI: Yes. We’ve had the death of the Queen and now this mini-budget, which has led to a mortgage crisis with fixed rates pushing towards 6%. What do you make of it all?
Mark: Well, there’s no such thing as a normal property market because it’s never ‘normal’. But I don’t think anyone could have anticipated the speed at which mortgage rates have risen. The problem is that nobody knows when this is all going to settle down, so lenders have become nervous and confidence has evaporated.
However, it’s important not to believe overly negative headlines and wildly pessimistic predictions. At the end of the day, people will still continue to buy and sell houses. Life will go on. But the worry is that people may decide, because of the uncertainty, to put off their move until the economic situation stabilises.
JMI: How long do you think that might take?
Mark: Well, the government needs to convince the markets and mortgage lenders that their economic plan is credible. We’ve got a financial statement coming at the end of the month so let’s see if that helps.
If we’re looking for positives, at least unemployment is very low. And although inflation is getting high, which isn’t something we’re used to, those of us who are more ‘mature’ might remember a time when both inflation and interest rates were in double digits. We’ve had credit easily available at low rates for a long time now so we’re just going to have to get used to a different environment.
How long will mortgage rates stay high? It’s hard to tell. But there’s going to be an election in the next 2 years so maybe that might change things. Somewhat perversely, Labour has traditionally been better for property.
JMI: What do you think about the fixed rate versus variable rate dilemma? Some people believe that a discounted variable mortgage might be a good option for optimists who think things may improve soon.
Mark: Obviously we’re not financial advisors, but 5 years is a long time to sign up for a fixed rate. You might be comfortable with a fixed rate at the start but how will you feel if rates go down after a year or two?
Taking a variable rate comes with risk though. It does seem probable that rates will keep climbing for a while. We know, for example, that underwriters are stress-testing the ability of borrowers to pay rates of up to 8.49%. We don’t know if this is a worst-case scenario, or whether they really think rates will reach such heights, but it’s something to bear in mind. Will people be prepared to live with the uncertainty of a variable rate?
Borrowers should be reassured, however, that if a lender offers you a mortgage at a particular rate then they’re pretty certain that you’ll be able to afford it in the long run. So if they think you’ll be ok, you probably will be.
JMI: Naturally, all this feeds into a broader discussion about whether there will be a property crash. The Oxford Economic Consultancy has argued that UK properties are currently overvalued by 30%.
Mark: Well, presumably the media have picked this up because it’s an eye-catching figure. But I’m not sure what it’s based on. The thing is, we’re currently in a situation where there’s limited stock on the market, so will something that’s in such short supply get devalued to such an extent?
We also know that people are now staying in properties for longer, and that the pandemic has shifted attitudes towards housing somewhat, so I’m not sure this scarcity is going to change anytime soon.
JMI: There are those who argue that a crash wouldn’t be all bad. What would you say to those who claim that some realignment is actually needed?
Mark: I don’t agree with them. A 30% dip, for example, would be extremely damaging. For starters, it would leave a vast amount of people in negative equity. This means they can’t move, because they can’t afford to pay back their current mortgage, and we’d also be looking at mass repossessions. But let’s not forget that only 40% of property is actually mortgaged. The rest is owned outright.
Therefore, I think we’re going to see people adapting to increased living costs, and it will be tough for many people, but I can’t see a large crash. I think the bigger worry is that people simply decide not to move until things settle down. So let’s try to block out that media hysteria and take a measured approach.
JMI: Obviously the problem with predictions is that nobody has a crystal ball. But it does look increasingly likely that we’ll have a change of government in two years’ time. How do you think a Labour government might impact the sector?
Mark: Labour will be particularly focused on the rental sector to start with. Their proposed Renters’ Charter will beef up the proposals in the Renters Reform Bill. And they’ll want more social housing, too.
I’m a bit worried, however, that too much power might shift towards tenants and away from landlords. And if that happens then the private rented sector will shrink at a time when we desperately need more housing.
JMI: Shadow Secretary of State for Communities, Lisa Nandy, has suggested the abolition of automatic evictions for rent arrears. This seems controversial…
Mark: Yes, it is. The National Landlords Association has said this would basically make paying rent optional. And it would put landlords, many of whom are highly geared when it comes to their buy-to-let mortgages, in a disastrous position. Some tenants could obviously take advantage and the number of landlords would fall.
Meanwhile, more social housing would be a good thing but it’s unclear where it would come from. It’s not easy to suddenly build thousands of new homes. The bottom line is that we need private landlords or we’ll end up with an awful lot of homelessness. So I hope Labour don’t underestimate the private rental sector.
JMI: Kier Starmer says he wants to “put more spades in the ground”, too. We’ve often talked about the need to build more new homes. Why aren’t we doing it?
Mark: Sadly, building more homes isn’t a simple exercise. Planning is one issue. It’s still in the hands of local government who can find it hard to designate development areas, especially if they’re in greenbelt areas. It takes a long time, too. It can be two to three years between submitting an application and actually putting a spade in the ground.
There’s hope that new technologies can help, of course. We’ve mentioned modular homes before, and homes constructed off-site, which can be quicker to build but sometimes more expensive. But the problems aren’t easily solved. For example, we’ve also got labour shortages since Brexit so developers need more apprentice schemes.
So overall it’s going to take quite a lot to get construction moving. We shouldn’t forget that developers want to make a profit, too. And they don’t necessarily want to flood the market with new homes because it will decrease the value of the homes they do build. It’s therefore quite a complex issue, which I’m sure we’ll return to another time.
JMI: Yes we’ll definitely return to this one. But sadly, our time for this month’s Residential Expert is up. Let’s meet again in four weeks.
Mark: I look forward to it. Let’s hope the waters aren’t quite so choppy in November.
If you'd like to watch the full conversation, click on the video below.
https://youtu.be/UVEHkqDO4n4
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