Are we in danger of talking up a housing market collapse? - David Alexander

When you look at the headlines you might be forgiven for thinking the market is close to a repeat of 2008 when there was a sudden correction which negatively impacted property prices for years. Yet when you look closely there is not the same combination of factors at play and the wider circumstances are not as negative as they were prior to 2008.

For example, interest rates peaked at 5.75 per cent in July 2007; unemployment was at 5.26 per cent the same year rising to 5.62 per cent in 2008, and 7.54 per cent by 2009; GDP in the first quarter of 2009 fell by 2.6 per cent which was equivalent to the annual increase for 2007.

Now, interest rates are at 3 per cent; unemployment is at a record low of 3.6 per cent; and GDP for the latest quarter fell by 0.2 per cent up to September 2022. Therefore, while it is important not to underplay the fact that we are in, or about to enter, a recession the degree of the downturn is not as steep as 2008 and consequently any decline in the housing market will not be as sharp.

Yet there is already talk of repossessions rising and of help needed to keep people in their homes. The Scottish Labour party has recently unveiled a “mortgage rescue package” to help those at risk of losing their homes due to the current cost of living crisis.

David Alexander

They are proposing relaunching the Scottish Mortgage to Shared Equity scheme in which the Scottish Government provides funds to take a temporary equity stake in people’s homes to reduce payments.

Anas Sarwar is quoted as saying: “People are now paying a premium on their mortgages and what we want to avoid is people’s arrears increasing, repossessions increasing or even the risk of people losing their home and all the risk that comes around homelessness from that.”

While this all sounds helpful it assumes that many peoples’ homes are at imminent risk of repossession. In 2007 there were 40,000 home repossessions in one year. The latest figures show that just 700 homes were repossessed in the third quarter of 2022 for the whole of the UK. This equates to around 63 homes pro rata in Scotland so if this continued over the coming year this is just over 250 homes which may be repossessed.

We are clearly far from being in a comparable situation to 2007-08 so I fail to see how proposals which imply major levels of repossession leading to homelessness are imminent is going to help nervous homeowners through what will undoubtedly be a difficult year ahead.

Far better to advise homeowners who are concerned about rising mortgage payments to contact their lenders who generally don’t want to repossess and are acutely aware of providing flexible solutions to what we all hope will be a temporary economic situation.

Most lenders will consider delaying interest payments; agreeing a payment holiday; extending the mortgage term; changing the type of mortgage (perhaps from repayment to interest only); or adding the arrears onto total mortgage debt.

I think we need to step back from the recent doom and gloom of the September mini budget which caused market turmoil and look at where we are now. Mortgage rates have stabilised, the projected base rate peak of 5-6 per cent is now expected to be a couple of percentage points lower than recent forecasts and the Autumn statement – while punitive to everybody – does at least appear to have calmed nerves in the financial markets and the wider economy. So, while house prices will flatten and may drop a few percentage points I don’t believe we are heading into a major storm in the housing market. Offering solutions to problems which don’t yet exist is unhelpful and counterproductive and is likely to exacerbate negative sentiment.

David Alexander is CEO of DJ Alexander Scotland Ltd