Transcription
Hello and welcome to Alazer's London studio.
Now, here in the UK, the war with Iran is pushing up mortgage rates, putting pressure on the housing market, which is one of the main drivers of the British economy. The average 2-year fixed rate mortgage has risen from 4.83% at the start of March to 5.66% now, while the average 5-year fixed rate mortgage is up from 4.95% to 5.62%.
Now, that and the uncertainty caused by the war is impacting house prices, which lenders and estate agents say fell 0.6% in May, the fastest rate for almost a year. And they predict that average prices will fall 2% over the course of this year. Charlie Angela has more on this.
>> More boards but fewer buyers. Britain's housing market is showing signs of strain. A worry for a nation where the property market plays a major economic role. Before the war with Iran, the housing market was slowly improving. And there was hope that the Bank of England might lower interest rates, which would make mortgages more affordable. But that optimism is gone, replaced by economic uncertainty. Mortgage rates have increased in the last few months and now buyers are holding back.
>> As you can see, open living space with a beautiful view.
For many, buying a home is the biggest financial decision they will ever make. But despite the softening prices, people are hesitating. The number of new buyers making inquiries has fallen to their lowest since 2023. Estate agents say buyers that are jumping in are negotiating harder and transactions are taking longer. It's more the fear of what's coming down the track which is driving sentiment at the moment. But it's the worry about that which is particularly relevant at the moment and causing some prices to uh soften, transactions to lengthen and worrying first-time buyers in particular.
The housing market is often where economic uncertainty is made visible. UK house prices were expected to rise by 2% this year. Now they're forecast to fall by 2%. And in the last month alone, the average UK property price fell to $373,750. It's not a crash, but definitely signs of a slowdown. Whether this proves a passing dip or endures depends on how quickly the conflict ends. Charlie Angela, Alazer, London.
Well, joining me now is mortgage broker and wealth manager Riz Malik, who's also the director of the independent financial advice firm R3 Wealth. Thank you very much for being with us here. Now, let's delve a little bit deeper into the issue of falling prices. It comes against a backdrop of raising rising mortgage rates. That's got to affect how much people can actually afford to spend on a house. But there's got to be other reasons too. Uh what is behind this tempering of demand?
Sure. And as you rightly pointed out, one of the big reasons is the conflict of Iran that's pushed up energy prices and subsequently the outlook of future rates is a lot higher. But it's not just that. In the UK, we've got a lot of economic uncertainty at the moment. We've got businesses, a lot of whom are struggling and uh not a million miles away down here in Downing Street. we've got a potential conflict and we could have a new prime minister. All of these things feed into uncertainty. And what do people do when they're uncertain? They sit on their hands. They don't make big financial decisions. And all of these factors now are feeding into exactly what you've just shown in your video.
And when you look at it at first glance, you might think, well, houses are cheaper. That's good news for first-time buyers. But it's a little bit more complex than that. Because here in the UK in particular, comparing it to other equivalent countries, the housing market is a real engine of the economy. So if there's a slump, what would the wider effect be?
Well, there's a big knock on effect within the the whole of the United Kingdom economy. We've got developers at the moment who aren't developing. They're not building houses. Those developers would have created jobs. If people aren't moving, it's all the other industries that feed in to the UK housing market that suffer as well. If you were moving, you might go and, you know, buy loads of new furniture, which obviously has a positive impact on the retail sector. So, property in this country, if it continues, the negative trend that we're seeing at the moment, could have much more devastating consequences in the whole of the rest of the United Kingdom economy.
The backdrop to all of this, the Iran war still not settled, but stay with us. is Malik cuz we're going to talk in a minute. But first, we're going to take a closer look at why a conflict thousands of kilometers away is directly affecting mortgage rates here.
Now, the biggest impact comes from energy. The effective closure of the street of Hmuz has pushed up energy prices globally. This affects the cost of almost everything from transport and food to manufacturing, not to mention household heating and electricity bills. And as a result, UK inflation is now expected to reach around 4% this year. Now, the Bank of England wants to keep it at 2%, so it may have to raise interest rates, which would make borrowing even more expensive. And when banks and mortgage lenders set their rates, they take into account where they expect interest rates to be in the future, not where they are now. Jonah explains the mortgage situation in the UK.
A mortgage is the loan you need to buy property, but the rules of the game have changed. In the UK, the rates at which banks will lend money have surged since 2021. Every time those rates move, British borrowers rolled the dice again. The average fixed 5-year rate mortgage has doubled in the last 5 years. Take a chance on renewing your deal today and the average British homeowner will pay $136 more every month. Millions of households across the UK are expected to see payment increases over the next 3 years as their deals expire. Between them, that'll cost an extra $1.6 billion.
On the continent, the rules are different. In Germany, for example, the rate for a typical 10-year fixed rate mortgage sits at around 3.6%. The UK rate is 5.1% for a 2-year deal. Why the difference? Well, UK borrowers tend to fix for just 2 years at a time, while on the continent, people lock in for a decade or more, protecting themselves from spikes and fluctuations. And it's UK homeowners who are losing out. Jonah Hull, Al Jazer, London.
Well, Riz Malik, mortgage broker and wealth manager still with us. Now, following from Jonah's report, the most obvious question here for me really is why is the fixed rate in the UK, say on average two years, whereas Jonah's example, Germany, five. What's behind that?
We love short-term fixed rates in the United Kingdom.
Why? Why do we love it?
Great question. And I've been in financial services now, I know I don't look old enough, for about 25 years. And two and fiveyear fixes are always been very popular. Let's go back until the credit crunch where we saw uh rates come down to a record low level and sit there for a very long period of time. What happened in this country, we saw property prices continue to go up. So with short-term fixes, people would fix for two or five years hoping that after that period the value of their property would have gone up and they could have moved or they could refinance, pull out the money and then go and maybe invest in another property. That's the reason why we are at that stage. Now there are a few lenders that have had tried to change that in the United Kingdom, but so far they haven't been successful. Even I've had conversations with clients and they just cannot get their heads around the long-term fixed rates like they have in Europe and like are very common in the United States as well.
Interesting. But by international standards, it's important to mention the UK housing is expensive. Britain spend a really large share of their income on their homes. Why is that the case here?
because we live on an island and we are not building nor have we been building houses at a fast enough rate that we need to. Every government that I can remember and even the current one has set housing targets that very clearly they fail to meet and without greater housing stock and that's affordable housing stock not five sixbedroom houses but properties for people to start on the property ladder until we have those it doesn't feed into the rest of the market. You have to remember for someone to move up the property ladder someone needs to come off at come on at the beginning and that's really where we're struggling. We need to build more houses in this country. It hasn't happened. It needs to happen.
Well, Riz Malik, stay with us because we're going to have a look at another aspect of the housing market, and that is that British mortgage approvals actually rose to a 15-month high in April as people tried to lock in better rates before the war in Iran drives up boring costs even more. Now, the Bank of England says 65,945 mortgages were approved in April and that's almost 2,000 more than in March.
Now, Ra Malik, you're still with us. So, people who can afford to have secured a good rate, not everyone can, of course, but there's another interesting aspect to this is that is that London has always attracted international buyers. What's happening with that now?
London continues to be London and it still continues to attract people from overseas because for a number of reasons. The regulatory environment here. If you own land, you actually own the land. The legal framework that we have, the fact that a lot of people send their children to the UK, not only just London to, you know, for their education and everything. London is still London at the end of the day. And we're still seeing buyers from uh America, Asia, uh you know, the Middle East still wanting to secure property over here. Don't get me wrong, it has been harder because there are more taxes for overseas buyers and even expats who want to buy property in the UK. We deal with quite a few of them. Uh but London hasn't lost its charm. And one could argue at the moment if prices do take a bit of a dip, now is a good time to come and invest. The UK capital retaining its allure.
Well, Riz Malik, thank you so much for all your thoughts and all your insight. And that is it from me and the team here in London.