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Making sense of the mortgage mayhem

Understanding why and how a ‘housing market crash’ has come about — and is predicted to continue — takes more than just studying the data. 55Plus Business Development Director, Adrian Johnson, has five decades of experience as a chartered surveyor and shares his perspective on the present fears around falling property valuations.

As a chartered surveyor with 50 years of experience, I’ve seen a lot — and that includes predictions of doom for the housing market, by economists who’ve never professionally valued property in their lives. I ask you; would you value a shop in Knightsbridge, London, on the same basis as a lock-up in Blackpool? Of course not. The ‘housing market’ is no different. it’s thousands of local markets across the UK — they don’t all go up and down according to a single factor.

House markets are like a floodplain

The range of local markets responds to changing mortgage rates like a floodplain absorbs a flood. A floodplain is a sponge with channels, features, and lots of individual quirks that quickly disperse the overall effect of the flood. By contrast, most economic forecasts are like a straightened concrete channel, with few options available. Flood it and floodwater has nowhere to go but spill everywhere.

Predicting with only two or three variables can be volatile: simple, average income-to-house price ratios lost real predictive ability a long ago. However, they still terrify financial markets. Ultimately, however, supply and demand for housing can only be accurately assessed across the local markets themselves.

Understanding local house market values

Identifying the true and authentic value of local property is not a simple process. The Land Registry shows house prices months out of date but tells nothing of the demand (or lack of it) that created those prices. Meanwhile, local demand may have changed up or down in the time since those values were taken.

Available housing stock can be assessed, with the main drivers of house deals typically being the number of local jobs, schools, and family events. What it does not contain, however, is the amount of free capital locally available. Volatile mortgage rates will affect it, but they cannot account for capital already in local properties — or capital available from other investments.

As you can see, there is plenty of airspace for many variables in how all these factors combine on the day in the actual market. Quantifying overall exactly how many people, with how much capital, will do what in relation to local supply at any one moment is, err… complex. Yet this is what economists blandly attempt with house price predictions based on a few general factors.

The lending market needs confidence

Digitisation made us all cannier in house dealing. When a squall blows through the local market, people hunker down, don’t move unless they must, and wait it out.

The result is that a brief oversupply of local housing dries up quickly, buyers who must move soon balance out sellers, and the potential for house prices to plummet through oversupply is avoided. The only thing that might upset this is if such a tsunami of repossessions occurred that a Niagara of excess property came to market. However, this would be politically unacceptable and highly unlikely.

Rate rises nowadays produce single figure decreases in house prices at the worst. The massive drop in Loan to Value’s (LTV) in response to economists’ predictions has frankly been unrealistic. The sooner the lending market gets its confidence back, the better.

Get in touch today for an initial, no-obligation consultation and find out whether equity release is right for you – in person or by phone or video.