McDonalds and the Mortgage Market is not something you would expect in the same sentence, so you may well be thinking, what has McDonalds and the current Mortgage market got in common?
I am hearing a lot of people ask about the current Mortgage market and whether (as a mortgage broker), I think house prices will drop in the next 3 to 12 months.
The honest answer is that I think house prices will stay fairly stable over that period. I think there may be some small drops but nothing significant that will see a collapse in the market. People obviously have a concern that they could buy a new home and be in negative equity the following month and it is understandable worry.
However at the minute, we are generally finding that anyone who made an offer pre lockdown is holding on for the lockdown to be lifted. They are not looking to renegotiate or pull out and that is quite encouraging.
We are also still getting enquiries from people looking to buy a new home, that in itself is also encouraging as it shows people are positive about the future.
There is some news in the press around the number of house purchases tumbling and that is stating the obvious.
With the lockdown in place, viewings can not take place, valuations are limited, people who want removal men are going to struggle so it is completely understandable why so few offers and completions are taking place. It is difficult to read into that and come to the conclusion that house prices will drop.
The assumption being that the demand and supply are still there, but for a temporary set of conditions (ie the lockdown) this prevented housing market transactions to be completed. Furthermore, now that the wheels are slowly turning again, that those whom were in a position to proceed, and are still able to, can do so.
So where does McDonalds come in?
When the lockdown happened, McDonalds closed its doors and stopped selling its happy meals and Big Macs.
The demand was still there, people were still wanting their McDonalds fix, but they were unable to get one.
And I think (in a very simplistic way) that this sums up the Mortgage market.
It is still the case that the demand and supply are there. People still want to move home, they just cant.
You have people having children who need bigger homes, people with children wanting to move to areas with better schools or at the other end of the spectrum, you have people getting older who may want smaller homes or a bungalow for instance.
Mortgage lenders still have plenty of money to lend, because of the governments support to businesses, there are no mass redundancies like there were in 2006/2007 so demand is not being hampered that way.
Future House prices
For house prices to drop there needs to be either:
A drop in demand – typically this would come because of mass redundancies or supply increasing significantly and outstripping demand.
A lack of funding – this would be where the banks are unable to get the money needed to lend to customers and in turn that quells demand as people can not get the Mortgage they needed.
Neither of those things appear to be happening at the moment and with people already in chains seemingly happy to wait it out and proceed, it leads me to think that house prices will hold for the time being and that bar some regional variances I think they will stay relatively stable throughout the year.
However, this outlook on the market from a brokers perspective is heavily reliant on the government continuing to support businesses during Covid-19 outbreak and potentially a little beyond.
The true test however will be in the 2-3 months following the lockdown.
Lets us also not forget that if there are less people wanting to sell, you may find that the supply and demand goes in the favour of sellers and actually pushes up house prices.
Either way, unlike in the late 90’s and early 2000’s were there was high house price inflation and the expectation of making a quick profit, with interest only loans fuelling much of this, the mortgage market has seen so much more regulation and stabilisation since. Also, given that interest only mortgages are no longer available to todays new residential home buyers, with capital repayment mortgages, at least you are chipping away at the debt (albeit slowly at first) and paying off the loan, rather than just hoping for a price rise just to fuel your next move up the property ladder so to speak.
It will be an interesting few months…