The UK housing market is not facing the 'Armageddon' that is being reported, said broker Davy.
Although conditions have undoubtedly been “very challenging” for the housing market, analyst David Reynolds wondered if they could be just a short-term response to the career-ending ‘mini budget’ of Liz Truss and Kwasi Kwarteng.
After mortgage rates soared in response to the mini-budget, mortgage approvals in October fell 10.6%, over 12% below the 10-year average.
It is “not Armageddon”, said Reynolds, “but difficult times are coming.”
“Valuations will correct and mortgage rates will stabilise; we don’t think the data points towards Armageddon, although October was extraordinary.
“Estate agents will be squeezed by rising fall-out rates and, as we have said before, RMV would need Armageddon and mass agency failures to buckle.”
Purplebricks Group PLC (AIM:PURP) is expected to be "hurt" but Rightmove PLC (LSE:RMV) is expected to remain “somewhat aloof”.
Reynolds said the Bank of England mortgage data is the “only true forward looking indicator” for not lenders and estate agents, with an increase in approvals today roughly translating into an increase in sales in approximately three months.
“An increase in approvals requires the number of active buyers to rise and for lenders to see lending as a reasonable investment – giving some insight into lenders’ expectations for the future health of the market. Fears of falling affordability may lower the rate of mortgage approvals.”
Looking at housing affordability amid rampant inflation, the analyst said the squeeze on disposable income and rising interest rates meant “there was going to come a time where affordability outweighed the demand to move home.
“With approvals down 10.6% in October and house prices falling in three of the last four months, it seems that time has arrived.”
Affordability “will become the defining feature” of the market, as mortgage rates will continue to rise, with affordability metrics showing growing issues in this area already.