There are, of course, many people struggling with their mortgage repayments. There are first-time buyers who have been especially hard hit, but also the buy-to-let investors who fooled themselves into thinking that ultra-low interest rates would last indefinitely and have over-borrowed.
Few will feel a lot of sympathy for the latter group, many of whom have been forced to sell up, according to anecdotal evidence. But their plight shouldn’t distract from the fact that, for all the talk of a house price crash, property has not been a bad investment over the past twelve months.
This morning, the Office for National Statistics (ONS) published its two monthly indices, on house prices and residential rents. They show that in the twelve months to May 2023 the average house price rose by 1.9 per cent. In the 12 months to June, average rents rose by 5.1 per cent. In London, the rise in rents was slightly higher – at 5.3 per cent – as people returned to the capital after lockdown.
That still means that rents rose by less than inflation, but in a year of depressed stock markets, it is hardly a bad return. According to data from the Foundation for Intermediaries, 41 per cent of buy-to-let investors own their properties outright. For property investors who do not have a mortgage, it cannot be said to have been a bad year.
For property investors who do not have a mortgage, it cannot be said to have been a bad year
This is one reason why the slide in the housing market is likely to disappoint those who would like to see sharply lower house prices. In contrast to the early 1990s’ property slump, there are likely to be far fewer forced sellers this time around.
According to ONS data, the proportion of homeowners who own their property outright overtook the proportion who live in a mortgaged property a decade ago, and the number has risen ever since. Paradoxically, years of very high house prices have protected the market against a crash by squeezing out the highly-leveraged buyers who fed booms and busts of the past.
It may even be that investors with cash to spare take advantage of a cooler housing market to pick up extra properties. If you have a lot of cash sitting around in a bank account earning negative real interest, buying a property or two does not look such a bad option at the moment.
Indeed, house builders’ shares have surged this morning in response to a greater-than-expected fall in inflation, reducing expectations of how high interest rates may have to rise. A property market crash could yet happen if this changes again, and rates are jacked up further, but it is far from an inevitable outcome.
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