You know the drill: you’re sat next to someone at a dinner party – not a friend, not yet an enemy. You don’t want to resort to cliché too soon by discussing the weather, nor can you be seen to raise the burning issue of the host’s recent facelift. So you find safe ground, the new ‘what do you do?’, which is: ‘when did you fix your mortgage?’
If your answer is five years at 1 per cent, keep it to yourself. No one likes a smart aleck. Conversely, if you had no choice but to remortgage at the peak, feel no guilt in helping yourself to the last of the Pinot Noir – you’re drinking for a nation.
I don’t know where house prices will settle. And even if I did, I’d hardly be telling you in a free daily newsletter. Instead, let’s analyse the data already in our possession. The most excitable way of describing the current situation is that house prices are falling at their fastest rate since the Great Recession.
Our Business Editor Jonathan Prynn (who, by the way, assumed the role when interest rates were virtually nil), reports that the annual rate of decline has accelerated to 3.8 per cent, the steepest since July 2009. Of course, Jonathan would be the first to remind you that house prices have risen by roughly 20 per cent since the beginning of 2020 so unless you bought at the very top of the market, you’re still likely to be quids in.
A further caveat is that house prices will have fallen significantly further in ‘real’ terms, i.e. after inflation (and relative to wage rises, too). This is compared with the market correction in the late 2000s, when much of the pain was felt in nominal terms, given that inflation was running far lower back then.
This is partly why Robert Gardner, Nationwide chief economist, thinks it’s possible we’ll get a ‘soft landing’, with unemployment expected to remain below 5 per cent while “the vast majority of existing borrowers should be able to weather the impact of higher borrowing costs.”
Even if all this is true, it is fair to say that the full extent of the pain is yet to be felt by borrowers. As John Stepek points out in his excellent Bloomberg newsletter, Money Distilled, the average interest rate paid on new mortgages rose to 4.63 per cent in May. Bear in mind average two-year fixed rates are now 6.85% while five-year fixes are 6.37%, according to Moneyfacts. And if inflation fails to fall in line with forecasts, that brief respite in interest rate expectations may seem like a distant memory.
Clearly, the phoney war between sellers and buyers is gradually coming to an end, with prices falling back somewhat. Meanwhile, the ‘nightmare’ scenario of a 2008-ish crash and a series of toxic loans leading to collapsing banks isn’t likely. Indeed, most prognosticators suggest a fall of 10 per cent from peak to trough, on the basis that interest rates will start to fall again in short order. But this hardly qualifies as good news for anybody.
With the cost of borrowing vastly higher than 18 months ago, and in the absence of a dent in supply, it is entirely plausible that nothing fundamentally changes. House prices, particularly in the capital, will remain too high for anyone without the good sense to be born to wealthy parents. Meanwhile, those who can get deposits and finance together will still be able to buy, but will get even less for their money.
In the comment pages, Matthew d’Ancona says Rishi Sunak’s climate cowardice has given Keir Starmer a golden chance. I ask where the climate deniers have gone. Answer: they’d long moved on to other pursuits because there’s no accountability for being wrong. While Emma Loffhagen introduces the anti-work movement’s new hero: the ‘lazy girl’.
And finally, Boris Johnson’s plans to build an outdoor swimming pool at his Oxfordshire country manor could be scuppered by NIMBYS (Newts In My Back Yarders).
