House prices are echoing the salary compression of the jobs market
Strong activity across the middle to upper market is translating into fair sales volumes at the mid-price levels, less-so at higher ones. Yes, conflict in the Middle East took the wind from the sails of the best start to any year since pre-pandemic days, but this is only exacerbating the emerging trend, in southern regions at least, of house price compression: real values rising from the bottom up while those at higher levels battle to hold their own. The market feels vigorous across the board: healthy numbers of would-be buyers and sellers are keen to move and acting accordingly: new instructions, buyer registrations and house viewings are all marginally up on last year. What happens then, depends on where − geographically and economically − the property in question happens to be.
Confidence to commit to buy, is greater in some areas (eg the North West) and at lower price levels (which depending on where you live, could mean anything from under £600,000 to under £1 million). In part, this is because overseas conflict has generated cost-of-loan risks which increase in line with the size of the loan. But it also reflects the renewed dominance of salaried buyers, over those laden with cash from overseas demand or from City bonuses (which peaked in 2008). Today’s buyer, needs a mortgage.
The mortgage rate mirror
When salaried, borrowing buyers dominate, interest rates impact price differentials − inversely. In early 2022, typical borrowers happy to increase their interest payments by £150 a month, would secure a further £100,000. Today, that would get them under £38,000. If, through differing inflation, the price gap between what was, say, an £800,000 house and a £900,000 one has narrowed, that’s because the mortgage cost gap, has widened.
Pent-up demand despite tax headwinds
As if reduced salary differentials and higher interest rates weren’t enough, salaried buyers of higher value properties are also being buffeted by higher SDLT and income tax − especially, the infamous 60% effective marginal rate between £100,000 and £125,000 pa. This directly affects affordability and, depending on the lender and any salary sacrifice, borrowing limits. Even so, the nature of the current market − ie driven by ‘stage of life’ needs, not lifestyle or investment − is such that pent-up demand dating back as far as late 2022, is pushing ahead regardless.
Buyers are highly price sensitive and, when the time comes to make their offer and put their money down, less gung-ho than they would like to be, but they are committing and following through to completion. With exceptions, it feels as though every deal needs to be negotiated and nurtured with the utmost care, but most get there in the end. Which exceptions? Principally, it must be said, those deals involving buyers at the upper extreme of the wealth scale, the ‘outliers’ with multimillion pound salaries and investments, for many of whom the benefits of higher interest rates exceed costs. If the property you have to sell appeals to that market, it’s not so much price that becomes the core issue, as identifying an exact fit to buyer demands. Happily, while there are always idiosyncratic variations in relation to any one potential buyer, those demands tend to have a great number of features in common − and most properties have the potential to add a few, in preparation for sale. Even at the very top end, property values echo both the broader economy and the very human needs of those within it.
