High mortgage costs see rents rise across the UK | Interest rates

It’s a tale of two markets: while private rents have soared to record levels in the UK, making life precarious for tenants, the for-sale sector has slowed considerably and property values ​​have begun to fall, with steeper declines expected next year.

The latest house price index from Nationwide, Britain’s largest building society, along with Bank of England home lending data to be released this week, should shed more light on the severity of the slowdown in the housing in the UK.

The market was cooling off and mortgage rates were rising, even before the Truss government’s disastrous mini-budget brought the pandemic-era housing boom to an abrupt halt.

Mortgage rates rose well above 6%, a level last seen in 2008, adding hundreds of pounds to mortgage payments and causing a collapse in demand. Unsurprisingly, the Nationwide figures for October showed the first monthly drop in house prices in 15 months: at 0.9%, it’s the biggest drop since June 2020.

Expensive mortgages have deterred many first-time homebuyers, who are now renting in the hope that rates will drop in the new year, sparking intensified competition in the rental market, according to real estate site Rightmove.

But that is not the only explanation for the increase in rental costs. Work-from-home renters prefer, if they can afford it, to live alone rather than share a crowded house, says Andrew Wishart of Capital Economics. The number of people renting a single property increased by 530,000 in 2020-21, while the number of people renting in a household of three or more fell by 2 million.

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Wishart suggests that cost-of-living pressures could reverse this trend somewhat. “But with an average tenure of four years, it’s not going to happen overnight,” he says, adding that buy-to-let homeowners face a severe financial squeeze for years to come and many could sell, further reducing supply. .

Unsurprisingly, that rent shortage has increased the amount renters are willing to pay. London estate agency Foxtons has reported a 22% year-on-year rise in rents in the capital for the first nine months of 2022. Median rent hit a new high of £571 a week, around £100 more than the previous beginning of 2022. the year.

Record numbers of new tenants registered in the third quarter: There were 30 for every property listed, which is about three times recent levels. At the same time, supply has declined: new instructions from London landlords have fallen 18% in the first nine months compared to a year ago.

Foxtons describes conditions in the London rental market as “extraordinary”, adding that “the impact of the post-Covid return to the city has been acute”.

Supply problems have been exacerbated by a rise in student and company rents abroad, and by the 11% of homeowners opting to sell their property at the end of a lease this year.

According to research published by Rightmove last month, advertised rents have risen further in some other cities and towns. These include Newbury, Manchester and Cardiff, all of which have experienced annual increases of close to 20% or more. Rents are expected to continue to rise further next year, while house prices go the other way, with many experts forecasting falls of between 5% and 12%.

Capital Economics forecasts that home transactions will fall to their lowest level in a decade in 2023, with the median home price falling 12%. Rightmove has estimated a smaller drop, of up to 5%, while real estate firm JLL predicts a drop of 6%.

Meanwhile, interest rates remain on the rise, with the Bank of England forecasting that it will raise them by a further half a point to 3.5% in mid-December. Rates are expected to peak at 4.25% next spring, which is lower than feared.

“While mortgage rates are likely to fall back to 4% by 2024, we suspect that home prices will have to fall 12% before affordability improves enough for demand to pick up and prices fall. prices bottom out,” says Wishart.

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