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May Market Update
Another busy month in the property world. Don’t worry about all the noise, we’ve condensed everything you need to know into this super simple market update.
Feeling overwhelmed with the news? That's alright. We've got all of the leading stories — and we'll talk you through what it actually means for you. This month, we’re talking 100% mortgages and giving you a quick update on the state of the property market and house prices.
Firstly — What is a 100% mortgage and should I get one?
The start of May saw Skipton Building Society become the latest lender to offer 100% mortgages. This is when a lender loans you 100% of the house amount, meaning there’s no deposit. The reason why this made headlines is a) because we haven’t seen many 100% mortgages on the market for a while, with most lenders preferring a substantial deposit and b) because this is unique in that it doesn’t require a guarantor. Other 100% mortgages often rely on a family member stepping up to the plate, where this is aimed at helping renters who may not have access to other funds or generous family members. There are obviously strict requirements for a mortgage without a deposit – the borrower has to have had 12 months of punctual rental payments and a great credit score. Plus, there are some big pros and cons to think about. Because they saw a “gap in the market,” with so many unable to buy a home because they don’t have a large deposit, but still having to pay an ever-rising rent every month. Why not put that money towards mortgage repayments instead? The logic is, if you can afford rent you can afford a mortgage. There are some obvious positives to this new product and Skipton are leading the way in terms of democratising access to mortgages. However, it’s not all sunshine and rainbows — and there are definitely some factors to consider.Why did Skipton introduce it?
Sounds great, right? But is it as good as it seems?
Firstly, they only offer to lend the equivalent of your current rent payments, which is (for the average person) not enough to buy the sort of house they want to buy. Some would-be first-time buyers point out that with high house prices, they’d have trouble finding a property. Secondly, Andrew Bailey, the governor of the Bank of England, has warned that buyers and lenders need to be “very careful” when it comes to 100% mortgages. Why? Because high interest rates mean many borrowers may find themselves unable to make their repayments. This is a real risk for both the borrower (who could face serious financial stress and risk having their home repossessed) and for the lender. After all, mortgage rate spikes and the resulting loans defaulting were one of the main triggers of the 2008 financial crisis. The rate of Skipton’s 100% deal is currently at 5.49%, which is more expensive than their 5-year fixed rate mortgage. There’s also a risk of negative equity — because you don’t have a deposit, you don’t have any equity in your property. If prices fall, you could owe more than the property is worth. That being said, it’s hard not to see the value to renters desperate to get on the property market — and many find saving for a deposit simply not realistic. So if you’re aware of the risks and feel confident you can afford the costs of keeping up a home on top of your mortgage, it could be an interesting opportunity. It really is down to your circumstances. There are two main warnings against Skipton building society’s new mortgage rates.
Next up: what’s new with house prices?
Whether you’re a buyer or a seller, house prices are likely to be on your mind. Well in general, house price growth has slowed down again. Halifax has reported that April house prices were just 0.1% higher than April 2022. Also, house prices fell by 0.3% in April compared to March 2023. This has taken the average house price in the UK to £286,896 — or about about £7,000 less than prices in summer 2022. However this is not UK-wide: houses in the south-east are showing the most substantial value plateauing (or dropping), while the rest of the country is largely still showing healthy growth, with west Midlands and the north-east showing the greatest growth.
Looking to the near future, it will be interesting to see whether continued inflation (and particularly the growing price of food) means that the Bank of England pushes up interest rates again in June."
Why are we seeing some slowing growth or drops in price? Mainly because of the high price of borrowing since the end of 2022, which decreased demand and increased supply in the market. The cost of living crisis also weighs heavily on people across the UK, which forces house prices down as fewer people can afford to move. But there are signs the mortgage market is starting to stabilise, so we’ll have to wait and see. Looking to the near future, it will be interesting to see whether continued inflation (and particularly the growing price of food) means that the Bank of England pushes up interest rates again in June. Also, will more 100% mortgages start to join the party? Let’s check in again next month. Until then, remember to reach out if you have any questions.
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