Have you got Financial FOOI?

Doom and gloom in the housing market this week as the well-known Halifax House Price Index had its biggest annual fall since 2009, back when Gordon Brown was PM and Lady Gaga topped the charts.

The average house now costs around £280,000, down from about £294,000 at the peak last September. Before you panic and dig out the tent, let’s look at this in a longer-term context. Despite rising interest rates and the aftermath of Liz Truss’ disastrous Budget last year, the average house price is actually £40,000 higher than it was pre-pandemic.

Have you got Financial FOOI?

You don’t need to be an economist to see why prices are falling. Mortgages are expensive right now and that dream house shape-shifts into a nightmare when monthly repayments are more like £1,500 than £800 (for example). Humans hate unpredictability and uncertainty and so it’s easier to Just Wait And See.

We also hate making mistakes. What we’re seeing at the moment is a national Fear Of Opting In. Financial FOOI. There are too many articles where a journalist has found Mr And Mrs Smug-Git with a fixed rate mortgage of 0.5% until 2095 – making the rest of us feel even more averse to making a mistake and locking in a rubbish rate, or buying a house only to feel we could have waited and got it for less.

So there are less buyers (FOOI), sellers get alarmed (FOMO), and prices come under pressure.

The ripple effect of course extends to the rental market. If we’re not buying, we’re renting. According to a report from Stirling Ackroyd I was sent yesterday, average rents are up by 6% over the last 12 months in Guildford, up by 13% in Canary Wharf and up by 9% in the West End. (I know there is life beyond the South-East of England, I just didn’t get sent that report!).

Falling out of love?

Brits have had a love affair with property for decades now. A flat has been ‘a pension’ for many. But gradually the game has become less fun for private landlords. All tax perks have been removed so mortgages are not longer tax deductible. Income Tax thresholds have been frozen. Capital Gains Tax allowances have been reduced when you come to sell. And as a former holiday let owner, I think there’s also been a cultural shift where it became just too damn hard, as digital developments meant bye-bye nice known stable renters and hello short-term Airbnb randoms, a minority of whom will trash the place/annoy the neighbours/complain there are not sufficient whizzy coffee machines.

A last rate surge before the fall?

The next interest rate decision from the Bank of England is on the 21st September. The Bank boss Andrew Bailey said yesterday that “we are nearer to the top of the cycle” and seems confident that inflation will be notably lower by the end of the year, which should lead to lower rates. I’d guess we have one last hike to 5.5% ahead but there are signs that we’ll move pretty quickly into a lower rate environment as both the housing and job markets cool. Watch this space.

Have a lovely weekend everyone. Happy wedding anniversary to my brilliant Mum and Dad who clock up an almost inconceivable 58 years this weekend. ❤️ When they got married in 1965, the average house price was £3,353 and the average wage was £982 for men and £478 for women. Blimey!

Holly

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