While we might have seen mortgage pricing turned on its head these last few months, in terms of valuations, we have started to see a welcome return to normality.
After reports of estate agents ‘throwing out the rule book’ during the recent market frenzy, in the current climate, agents are now adopting a much more realistic approach to pricing.
Rightmove reported the proportion of unsold properties seeing a price reduction increased to 8% in October – double that of October 2021. With mortgage pricing constraining a number of buyers, we are seeing an end to some of the bidding wars and unrealistic pricing we have witnessed over the last several months.
In a buoyant market there will always be some estate agents who try their luck and price a property for more than it’s worth in the hope of winning business. Sellers and agents are now in the position where they need to price competitively in order to attract a buyer.
This is helpful for surveyors, as a realistic market appraisal by an estate agent lessens the chance of a down-valuation further down the line, once a surveyor’s valuation has been carried out.
While we expect to see more sensible pricing, we do not envisage any dramatic falls in the near-term. House prices may have fallen 1.1% in November but they are still 7.2% higher than this time last year, according to Rightmove. A slight fall this time of year is also to be expected, as sellers look to find a buyer before Christmas.
Supply constraints mean demand is also holding up and while it might currently be 20% lower than in October last year, it is still 4% higher than in 2019. Nevertheless, the cost of living and the cost of borrowing will both still have an impact on the homebuyer market over the next twelve months and that may produce a quieter market.
One area where we might see an expected pick-up in business is the remortgage market. That’s because, recently we saw a very rare situation in the market where in some instances it has made sense for a borrower to stick to their lender’s Standard Variable Rate (SVR), which could potentially lead to a backlog of remortgage business come the New Year.
As of November 3rd – the day of the last Bank of England base rate rise – the average two-year fixed rate stood at 6.47% and five-year fix at 6.32%, according to Moneyfacts. This compares to an average SVR of 5.86%. If we go back just one year to November 2021, the average SVR was 4.41% – almost double the rate of the average two-year fix of 2.29%.
Unlike tracker mortgages, SVRs do not directly track the base rate and it is at the lender’s discretion as to whether they increase them at all. While SVRs have not escaped increases over the last few months, their rate of increase has not kept pace with that of fixed rates.
This might start to change with fixed rates already starting to fall on the back of the new Chancellor Jeremy Hunt’s Autumn Statement. Even if we do see fixed rates fall significantly, we may still observe borrowers opting to temporarily linger on their lender’s SVR and apply the ‘wait and see’ approach, in anticipation of rates falling more.
The New Year will bring new lending targets and as such, we are likely to see competition in the fixed-rate market heat up. When it does, this might be the catalyst for borrowers on an SVR to act.
Likewise, if we do see mortgage rates and house prices fall – even marginally – we may see those buyers who are waiting in the wings decide it is a good time to buy. Even in quieter times – the housing and mortgage market never truly stand still.
Simon Jackson is managing director of SDL Surveying
