Mortgage Crisis Sends Shockwaves Through Housing Market as Sellers Slash Asking Prices

Introduction:

The UK housing market is currently grappling with the far-reaching consequences of a mortgage crisis, leading to an influx of property sellers drastically reducing their asking prices. With rising borrowing costs weighing heavily on homeowners, a significant portion of homes listed for sale are now being offered at discounted rates. Simultaneously, the retail sector is experiencing its highest level of insolvencies in a decade due to mounting borrowing costs. These developments are painting a bleak picture for both the housing market and struggling high street businesses.

Rising House Price Cuts and Mortgage Rates:

According to property website Rightmove, a startling 33% of all homes listed for sale in the fourth week of June featured asking price discounts. This figure is a significant jump from 18% during the same week the previous year and even surpasses the levels observed during the height of the Covid crisis. The surge in house price cuts directly aligns with a doubling of mortgage rates, with the average two-year fixed rate rising from 3.25% in June 2022 to 6.39% presently. As a result, the monthly cost of a typical £200,000 loan has increased by £362 over the past year, amounting to nearly £9,000 throughout a two-year fixed rate period.

Implications for the Housing Market:

The latest data from Rightmove has sent shivers through the market, with agents and economists anticipating a downturn in activity and prices. Nationwide reports that the average selling price has already dropped by 3.5% to £262,239 in the year leading up to June. Estate agents, such as Matt Johnson from Johns&Co in London, reveal that some vendors are compelled to reduce their asking prices by as much as 10% to secure a sale. Johnson explains that customers have lowered prices on 160 properties in the past two months, a significant increase from the 51 properties in the first two months of the year. The rising mortgage rates have particularly affected buy-to-let investors, prompting them to seek quick sales due to diminished profit margins.

Retail Insolvencies at a Decade-High:

In addition to the housing market challenges, the retail sector is grappling with a surge in insolvencies. Over the past 12 months, 1,942 retail businesses have gone bankrupt, marking a 56% increase from the previous year. Prominent brands like Jules and Made.com have faced high-profile failures, resulting in their acquisition by larger competitors. The escalating borrowing costs are taking a toll on the struggling high street, exacerbating the existing challenges faced by retailers.

Discrepancies Between Advertised and Achieved Prices:

Industry experts suggest that there is a significant disparity between advertised property prices and the amounts sellers are realistically able to achieve, even after reducing their asking prices. Mike Staton, a broker at Staton Mortgages, attributes this discrepancy to “ridiculous marketing valuations” that fail to reflect the current state of the market. Many sellers cling to outdated price expectations, while buyers remain cautious due to market conditions. Consequently, numerous instances of down valuations have been observed, with mortgage lenders downgrading property values well below the agreed sale prices.

Anticipating Further Challenges:

Real estate agent Simon Barry from Harrods Estates warns that the worst impact of the mortgage rate rises is yet to come. As homeowners approach the end of their fixed-rate mortgage deals, additional challenges may arise. Barry predicts that people at the top of the market will shuffle their assets and focus on paying down their mortgages, indicating potential financial strain on homeowners in the near future.

Conclusion:

The UK housing market is currently weathering the storm of a mortgage crisis, leading to widespread reductions in asking prices by sellers. Surging borrowing costs have driven mortgage rates to double their previous levels, resulting in higher monthly costs for borrowers. Consequently, the housing market has experienced a notable decline in activity and prices. Furthermore, the retail sector has witnessed a substantial increase in insolvencies due to mounting borrowing costs. As the market adjusts to these challenging conditions, both buyers and sellers will need to navigate the shifting landscape to find opportunities amid the uncertainties.