Real estate market downturn and market consolidation discussed at Lenders Live

While the real estate market has slowed from last year’s figures during the stamp duty holiday period, “the market is far from quiet”, according to industry professionals.

Speaker at the last Lenders Live panel on LinkedIn, which is hosted by Knowledge Bank, Graham Sellar, Santander’s business development manager for mortgages, says: “In the UK we tend to sell 100,000 properties a month, which is the general trend for the last 10 years. During the stamp duty holiday period, some months have reached 200,000, but it has fallen back to around 100,000, so the market is not calm.

Last week, latest Propertymark data unveiled that the average number of visits per property fell 29% in June, with the number of new buyers signing up per member branch in June appearing to have echoed the levels seen during the winter months.

But Sellar explains: “There are still a lot of buyers who want to buy but there is a shortage of property for them. Prices are still high and when you look at the house price index, it is still running at 12% of the year to May and even in the period from April to May, it increased by 1.2%. House prices are still pushed up due to demand and lack of inventory, but it’s still a very, very buoyant market.

Landbay chief executive John Goodall adds: “If inflation stays high – and by high I don’t just mean 9% but 4% or 5% – interest rates will continue to rise. One of the reasons the housing market has been so buoyant is that it has been incredibly cheap and cheaper than it has ever been in history.

“We are likely to enter a new normal where this is not the case to the same degree. It will still be cheap by historical standards, but if mortgage rates are likely to be double what they were 18 months ago, which is likely to be a long time and it will definitely impact the type of price in the housing market because mortgage payments are going to be a lot more expensive than they have been,” adds Goodall.

The panel notes that it has also impacted the buy-to-let market and ‘could effectively wipe out thousands of pounds of profit for landlords’.

Sedgewick, of Hampshire Trust Bank, says there has already been “a sound of footsteps leaving the market”.

“We’ve started to see a lot of landlords moving into multi-occupancy homes (HMOs) and larger HMOs, especially around student housing as well as people in the vacation market.”

“For professional landlords who depend on their rental income as part of their income, they will just diversify. We’ll see a drop in properties coming onto the market that could well be considered first-time buyer properties and also start to see some properties come back on the market, but I don’t think you’ll see a mass exodus of owners because I think that what we would have seen is probably already gone.

Prolific Mortgage Finance Managing Director Lea Karasavvas explains that with interest rates much higher than they were, “accidental homeowners who came into the market during lease-to-own as the cost of ‘borrowing was so cheap are now considering 4% of the sum instead of 1.75% and this will only reduce profits’.

“It will make those accidental owners wonder if they want to keep those assets or if they want to dispose of them now, especially considering the savings in discount fees that could be realized if you sell that property in this time limit.”

Karasavvas suggests that many accidental owners will “disappear”.

He also thinks the market will also see some diversification, for example, “the tax benefits of vacation rental will look a bit more attractive”.

“Rather than just getting rid of stocks and holdings, we’ll see diversification that should actually keep the longs going to leave the market fairly flat,” he explains.

“The pressure is now on lenders to come up with something more innovative in terms of rates,” he adds.

Market consolidation

Market consolidation was also discussed during the panel after the talks to combine Habito and L&C ended on Friday.

While Santander’s Stellar declined to comment on the deal, it explains that there is “a bit of a question mark in the market” as to whether there will be a change of people moving to Authorized Representative (AR) or Direct Authorized. (DA) as well as larger players. looking for more individual brokers with upcoming consumer rights rules.

Sedgewick adds: “As we’ve seen with Starling and Kensington, we could start to see some of the big banks investing in some of the niche lenders.”

However, she says, “I wouldn’t want to point fingers at specific lenders, it’s just that the funding mechanisms are quite complex.

Cost of living crisis

With interest rates likely to rise and the cost of living crisis continuing, more people will potentially be turned away from high street lenders due to affordability, but will specialty lenders rush to take in charge of additional business?

Sedgewick of Hampshire Trust Bank suggests that while specialist lenders will be able to make up the shortfall, “they also work within the same parameters as high street lenders when it comes to stressing borrowers”.

Sedgwick explains, “Where specialty lenders are probably slightly different is that they may look at different types of income and they may include that when doing income multipliers. But where the specialty lenders fall, 8% to 5% of everyone’s book has to start under four and a half times the income and the specialty lender is quite small compared to some of the traditional lenders.

“So if only 15% of those loans can be over 4.5%, that doesn’t really leave much wiggle room. While people are turning to the specialty market and there will be some great deals for consumers, I’m not entirely sure that’s the panacea in the future,” she adds.

Penny D. Jackson