Guest Blog // from Grant Robertson FRICS, Chairman of Allied Surveyors
For some time now there has been an inevitability to a slowdown in the Glasgow Property Market. House price inflation has been running ahead of wage inflation for over two years and this allied to the increase in interest rates which have been brought forward by the Bank of England to tackle inflation has together with the general cost of living increases put the squeeze of household expenditure which has to have a direct effect on affordability. Whilst the new “grownups” at Westminster have steadied the financial ship and it would appear the interest rates will now peak at a level perhaps 1.5 to maybe 2% below the levels which were being intimated in September, the kneejerk reaction by the banks has driven two-year fixed rates in excess of 6% against current base rates of 3%. I expect those rates will continue to soften and allow some affordability back into the housing market.
Markets are of course driven by supply and demand and supply has been at historically low levels for over a decade and it is likely that as we witness a slowdown in new house completions, the supply and demand imbalance will continue for many years to come. What we are witnessing just now is concerns over the ‘double deposit’ where purchasers having had to pay 15 or 20% over home report value as well as then finding their deposit between the valuation and their loan to value. The implications of this could be that a flat selling over the home report of the £150,000 and selling for £180,000 means the purchaser has to find £30,000 to bridge that cap and then perhaps on a 75% loan to value to find another £40,000 meaning a deposit of £70,000 for a flat that essentially valued at £150,000. This is making it very difficult to completed purchases. Home report values must reflect the current evidence of sales whether in a growth or recessionary market. Home Report values do of course naturally lag market sales because surveyors are looking at completed sales 3-6 months behind where the market works in real time. I expect the frothy prices over home report value to drop back and that the limited cash available to purchases as they offset the cost of living increases and other financial concerns. Overall, we will therefore see that the strong sales prices of late 2021 and early 2022 softened by perhaps around 10% whilst home report values themselves are unlikely to see any change for any period of time to come. As others have written in this blog, interest rates at 3% remain at half of what historic long-term rates have been and for those of us who remember the early 1990’s buying our properties at 16%, the current rates seem laughably low. Undoubtedly, it is not fun for people who have seen their mortgage payment double and perhaps even head towards triple through the last few months, but rates have to be viewed against a historic level of affordability which remains within perfectly reasonable margins in Scotland.
In summary, low levels of supply against more modest levels of demand will maintain the value of properties to within 10% of the stronger values paid through 2022 and we see a freeing up of parts of the market, particularly in terms of downsizers who now can see the point of selling their property, banking some cash and helping out their children or grandchildren where over the last decade with ultra-low interest rates, there has been little or no point to do so. Sales are still happening but all involved in the transaction be that agent, solicitor, lender, surveyor buyer or seller need to be alert to the changing landscape and ensure lines of communication remain open and that trigger points are addressed well before time constraints kick in. The property world is in a state of flux and now is the time to use experienced professionals who can adapt and perform in challenging circumstances.
Should you be thinking of selling in the new year for complimentary valuation our experienced team will guide you through the process.