House prices may be steadier than you think

Although most would agree that we’re probably not out of the woods yet, it’s fair to say that confidence in the UK mortgage and property markets appears to be on the up.

James Gillam is the co-owner of Pure Panel Management with his brother Alistair. Pure was established in 2010 and is the largest independently owned panel management firm in the UK. It specialises in managing valuations for the first and second charge, buy-to-let, and bridging markets. It supports many of the leading challenger and specialist lenders in the UK including United Trust Bank.

There has been a lot of negativity recently that UK house prices will fall, with some pundits suggesting a 10-20 per cent correction could be on the cards. However, our experience suggests it is far from certain that will happen.

There is still a significant lack of suitable property available for those who have been waiting to move since the start of the pandemic and whose plans continue to be on hold.

Just last month, we experienced an 8.8 per cent annual growth in property prices and we’re seeing new-build properties being snapped up off-plan, six months ahead of completion.

It’s the move to a bigger home – the second steppers – where we are witnessing the most pressure. Couples who might be looking for more space for an extended family, for example, find there just isn’t the 4-bed semi or detached stock available.

With an ageing UK population remaining in their family homes for longer, older properties are not coming on to the market, which is driving the demand for new builds.

The knock-on effect is that prospective buyers are finding that without the properties to choose from, rather than viewing 15 or 20 homes as they might have in the past, they are seeing one or two before making an offer. If they don’t move swiftly, they miss out.

It’s an area where – without having a great quantity of stock to compare – being able to trust the valuation is accurate is so important. I also think this is where the service provided by Pure Panel Management excels.

Our firm gives smaller valuation firms a chance to work on to the panels of banks they wouldn’t otherwise be considered for. The advantage for the industry is that these vastly experienced, independen small businesses have specialised knowledge in the local area.

They can see where the hold-ups are, the local hotspots of demand, and talk to estate agents on the ground. It makes them more reactive to local market changes compared to an automated valuation model that relies on historical data – this may be something we don’t have as much of going forward if the market does slow.

Flexibility with appointments before or after the normal working day and quick communication between our teams and the end borrower also makes a difference when they are part of our network that has been delivering 2000 valuations a month for the past 12 years.

It’s not just a lack of supply, but also a shift in intention that continues to drive the property market.

A big difference since the Covid lockdowns have ended is that people are moving back into cities. This includes students who can thankfully return in confidence to their universities. As such we’re seeing an increase in demand for buy-to-let properties in big university towns and cities such as Bristol, Cardiff, Leeds and Newcastle.

We’re also seeing a boost to the second charge sector. The average house price in the UK is just under £300k, but the average house price we’re seeing for secured loans has been around £430k. Homeowners on 5-year or even 10-year fixed rate mortgage deals who don’t want to give up what are now very low interest rates, are adding a small second charge to the property to pay for a loft or garage conversion, for example, rather than upsizing and losing their cheap mortgage.

Second charge products and the service from lenders have evolved immeasurably in the past few years to make them more flexible and bring more value to clients. They’re a real alternative to a remortgage when the aim is to release equity and we find brokers are becoming increasingly proficient in relaying the benefits.

It’s also good news for UK housing stock generally as properties are constantly being improved and updated. I can see demand for second charge mortgages continuing to grow over the next few years, which is great news for specialist lenders like UTB but also for us too, given the majority of valuations we deal with are linked to second charge applications!

We’re unrelentingly and unashamedly positive about our industry but we’re not unrealistic about the economy either. There could be an extended recession, but shallower than those we have seen in the past where many lenders shut up shop.

The difference this time is that we’ve come from a decade where borrowed money has been too cheap. If the correction allows the base rate to stabilise at around 3-4 per cent, lenders will be able to make a margin and it will still represent value for borrowers. There will just be a period of adjustment where we all get used to rates being reasonable rather than very low. While no-one likes to see their mortgage payments going up, you have to also consider that house values have increased by around 9 per cent in the last 12 months too. If you had any other investment putting a roof over your head and delivering that kind of growth in a year, I guess you’d be pretty happy with it.