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A trained surveyor, Phil Spencer is best known for fronting some of the UK’s favourite property shows, including Location, Location, Location and Love It or List it alongside Kirstie Allsopp. He has written three books and hosted podcasts and runs a property advice site MoveiQ. Spencer joins Telegraph Money as a regular columnist to share his knowledge and experience from over 20 years of buying and selling property and operating as a landlord
In the wake of then-prime minister Liz Truss’ so-called “mini-Budget” in October last year, the predictions for house prices were, even by normal press standards, pretty apocalyptic.
Interest rates had been on the rise for the previous 12 months but suddenly rocketed as the market reacted to the list of unfunded spending announcements. The era of cheap money came to a shuddering halt.
Shortly after, the Government’s own prediction through the Office for Budgetary Responsibility forecast a 9pc drop in prices over the next two years. And estate agent Savills said there could be a 10pc drop in prices over 2023.
So far (touch wood) these figures have been off the mark. The latest data from HM Land Registry charts a 0.2pc increase in house prices in the 12 months to August 2023.
Similarly, just today Halifax found that over October the average asking price rose by 1.1pc, adding £3,000 to the average property value.
However, this is not to say there isn’t reason for concern. The rate of price growth is well below the levels we are used to after a period of sustained house price increases.
Furthermore, market activity, a core driver of prices, has fallen significantly. RightMove data suggests the number of agreed sales has fallen 17pc since October last year, in part due to overly ambitious sellers in a market in which 37pc of all listings this year have had their asking price reduced.
Mortgage approvals have also fallen to the lowest number since January this year, according to figures from the Bank of England that suggest an ongoing reticence from buyers to make the jump while interest rates remain at their current levels.
But it hasn’t been the cataclysmic scenario that perhaps we were led to expect.
There is still movement. The reasons why people tend to move house, such as getting married, having a baby, getting divorced, or a family loss still happen regardless of the state of the economy. Life goes on.
Few people would choose to make these decisions at times of uncertainty but they will still need to be made.
This reality, coupled with an ongoing housing shortage, leads me to feel doubtful as to whether we will see a full crash in the housing market. The answer? We simply don’t build enough houses.
In the 25 years I’ve been tracking the housing market I don’t think we’ve ever once hit a government target (the chart below shows how far successive governments have missed the 300,000-a-year figure).
When you look at the numbers of people who live in the country in relation to the number of properties, it just doesn’t stack up. And it’s getting worse. We live on an island, have ongoing immigration, we leave home earlier, get married later, and live longer. Chuck all of that in the melting pot and it puts a permanent upward pressure on housing.
So unless we enter a recession that leads to significant unemployment I don’t think we will see prices falling dramatically, or by more than 10pc.
It is also important to remember that unless you are planning to buy or sell in the near future, house prices don’t really matter. If you bought your home three years ago, and you are planning to stay for at least another two, there is little value in worrying about the current market conditions.
True – your mortgage rate is likely to be more than you are currently paying when you need to buy again – but no one knows what prices are going to do over the coming years, not with any real certainty. It is even harder to model predictions using past events.
When the global financial crisis hit in 2008 the banks didn’t want to lend. They withdrew from the market in a way we simply are not seeing today.
Banks still want to lend, they are having to innovate to find ways to attract customers at higher interest rates in order to continue their business.
Furthermore, until recently I would have said without reservation that house prices run on confidence and sentiment. But then, there we were in the middle of a global pandemic and people were scared and the future was uncertain – and house prices were going gangbusters. So it really is hard to say.
The current government and opposition are well aware of the issues facing homeowners and aspiring buyers and there are frequent reports of policies being mooted to provide support ahead of a likely election next year.
All of this suggests that while the market may be in a down period, it is unlikely to crash. I also am a big believer that even in a downturn, good property will sell. It’s what I think of as a best-in-class system.
It doesn’t matter what type of property it is – if it is well maintained, offers the things buyers are looking for, such as close to transport links or green space, there will still be interest.
The difficulty with selling in the current market is getting the pricing right. Of course you want to get the best deal possible for your house, but online property sites mean that buyers can now see how many times sellers have had to reduce the price and it drives a further loss of confidence.
A far better strategy, I have found, is to set a realistic price from the outset even if it means lowering your expectations. Before listing your home, find some comparable properties in the area and look at what they have gone for. It may mean you sell faster and avoid further disappointment if you need to drop the price.
Another option I have found successful in the past is to set up an open day of viewings for your home. Find an agent you trust to be able to drum up interest and list the property with a really attractive guide price.
I have seen sellers find great success, who have been able to generate some competition that results in buyers bidding up rather than down.
Do be careful though, I have also seen it go wrong. Where, both at open houses and auctions, sellers have sneakily asked friends to put in an offer in order to kick-off a bidding war and the friend has ended up with the winning bid so the whole thing has to start again.
If I am totally honest, it is the longer term trajectory of the housing market I worry about rather than an immediate crisis.
The risk is that Britain falls out of love with property.
In this country, we have been brought up with the ambition of homeownership – it is a really central thing for us. I believe in it and the security and freedom it gives you.
But what happens if interest rates are high, deposit requirements are high, but prices are stagnant? Will people continue to aspire to own their own home?
First-time buyers are faced with a double whammy of high interest rates and high house prices – despite the slowing in growth we are seeing.
At the same time, rising rental costs means it is harder to save for a deposit, making it more likely they will rent for longer and may even decide they are happy without homeownership.
And it is not just the financial strain. I think in this day and age we’re not used to waiting for things. In today’s society there is a culture of expecting things instantly, whether that’s ordering food or going on holiday abroad using credit.
We are simply not used to waiting. I worry that younger generations, if they need to wait for something, will lose interest. Admittedly my generation has had it very lucky and in some instances has been able to ride the wave of house prices increases over the past 20 years.
But my parents’ generation sacrificed for years to save for a deposit. And that’s not the case anymore. We have got used to money being cheap. Now if it’s harder and if it takes longer, people may well move on.
And then what happens to the housing market? That will mean a huge shift within society and I’m not sure the rental market is geared up to accommodate a rise in the number of lifelong renters.
However, we are not there yet. Maybe I need more faith in policymakers that we will see a rise in housebuilding and well-considered support across the market. For now however, my main advice is not to panic. If you don’t need to sell then sit back and enjoy your property for the life you live in it, not for its monetary value.
And if you do need to sell, then take the time to ensure you are showing your property in the best possible light. We know markets move in cycles, this one doesn’t look as though it will be as bad as some predicted. The era of cheap money is over but hopefully our love of property isn’t.
As ever, do email me with your thoughts and questions: phil.spencer@telegraph.co.uk
Phil Spencer shares his advice on his website moveiQ.co.uk
Phil Spencer: Don’t panic – there won’t be a house price crash
The era of cheap money is over but hopefully our love of property isn’t