As a well established, experienced local estate agent, we often get asked what is going to happen to Alfreton house prices.

We all know that many things have both a direct and indirect affect on house prices. However, at the end of the day, it comes down to simple supply and demand.

On the supply side of the equation, in the short-term, the number of people wanting to sell their property at any one time has a massive effect on house prices.

In 2007, the number of properties that came onto the market in the Alfreton alone jumped hugely. In January 2007, 105 properties were available for sale in Alfreton and by October in the same year, that had risen to 133 properties.

This flooded the market with houses to buy whilst, at the same time, the banks almost stopped lending money because of the Credit Crunch, thus causing the house price crash of 2008.

Also, on the supply side of the equation is the total number of houses in the whole country, irrespective of whether they are on the market or not. This is an essential factor in house prices, although that has a longer-term effect. Governments can control the number of properties being built with changes in planning regulations, incentives for builders and the buyer schemes such as the Help to Buy plan.

On the demand side of the equation, property values typically rise if homeowners believe they will be wealthier in the future.

Typically, that occurs when the whole country’s economy is performing well as more Brits are in work and salaries are higher. The opposite is also the case when the economy goes into recession; people tighten their spending, lose their jobs, and thus, house prices drop. Inflation will affect British household budgets because if more of the household budget is going on increased bills, there is less available for mortgage payments.

Another factor on the demand side for housing is when the population increases through either people living longer, increasing net migration or when the divorce rate increases making one family household into two single-person households. As always, rising demand typically means higher house prices.

One aspect of the demand side of housing that the Government can control is the taxation of moving home. In the late spring of 2020, the Government vastly reduced Stamp Duty tax paid to buy a house, saving many home buyers thousands of pounds.

The more banks and building societies can offer mortgages, the more homebuyers can buy their future home, thus raising house prices.

However, the constraint is the amount a home buyer can borrow on a mortgage.

What someone can borrow depends on what they earn and if they can afford the monthly mortgage payments. The level of mortgage payments is dependent on three things.

1.    How much you borrow

2.    The interest rate charged

3.    The length of the mortgage

The lower the interest rates are, the lower the cost of borrowing to pay for your house is and thus more people can afford to borrow money with a mortgage to buy a home, meaning house prices tend to go up.

So, looking at everything above, apart from Stamp Duty and the incentives for buyers, which historically have made a minimal difference, the Government in the short-term, irrespective of who the Prime Minister is, makes little difference directly to house prices.

The most significant short-term factor which directly affects house prices is interest rates.

However, it is the Bank of England and not the Government that sets the interest rate for the UK economy. That means that Rishi's Government cannot directly make any differences in house prices, apart from the points raised above.

Yet, indirectly, as seen with the Liz Truss/Kwasi Kwarteng Mini-Budget catastrophe only a few weeks ago, what the Government does can make a massive difference to interest rates and, thus, the property market and house prices. 

Since December 2021, the Bank of England has been slowly raising interest rates to combat inflation. Unfortunately, the downside is that it increases the mortgage rates homebuyers must pay if they are on a variable-rate mortgage or coming off a fixed-rate deal secured a few years ago. As 17 out of 20 homebuyers have a fixed-rate mortgage, when a bank or building society calculates a 5 or 10 year fixed-rate deal, they consider what the Bank of England interest rate is today, but they also consider something equally important, something called the 'swap rate'. 

So, what affects UK swap rates? Mainly one thing; the price of government debt in the form of gilt yields. A gilt is a UK Government liability in sterling, issued by HM Treasury and listed on the London Stock Exchange. UK government bonds are known as ‘gilts’ because, historically, the paper certificates issued with fixed-interest securities had a gilt-edge. In the US, government-backed bonds are called ‘treasuries’. and a gilt yield

Given the vast increase of planned government debt originally announced in that mini-budget by Truss/Kwarteng, the money markets who would be lending the Government the billions of pounds to fund those tax cuts got worried the Government wouldn’t be able to pay back such a rise in borrowing, so wanted a higher rate of return on the money they were lending the Government. 

That return is measured in the 'gilt yield rate', and the gilt yield rate directly drives the 'swap rate.'

That rise in the gilt yield rate/swap rate was the main reason mortgage rates rocketed after the mini-budget and helped in the collapse of Liz Truss's Prime Ministership.

Rishi Sunak’s first job was to re-establish confidence in the money markets for UK plc. During the summer, the 5-year gilt rate rose steadily from 1.6% to 3.5%, in line with the general rise in Bank of England base rates. Yet when the mini-budget was delivered on the 23^rd of September 2022, that rose almost straight away to 4.6%.

At the time of writing, the 5-year British gilt yield has dropped to 3.5%, and the others have either dropped below their pre-mini-budget rate or were moving in that direction, depending on the gilt type.

The gilt rate (which directly affects the swap rate, which in turn, directly affects mortgage interest rates) could drop further, subject to what Rishi Sunak and his Chancellor Jeremy Hunt have planned in the Budget on the 17th of November 2022.

A drop in the gilt/swap rate is vital for any Alfreton homebuyer buying a house or Alfreton homeowner re-mortgaging to a new mortgage deal.

Why?

Because with the average Alfreton home worth £208,377 (a rise of 10.04% over the past year), each 1% extra in the mortgage rate would cost every Alfreton homeowner an additional £173.65 per month.

Greater certainty will keep the volume of housing transactions ticking over, yet not inescapably Alfreton house prices.

In our blog articles on the local Alfreton property market, we believe house prices will be lower in 12 months, and expect Alfreton prices to return to where they were in the late spring/early summer of 2021.

 

Unlike the 2008 Credit Crunch house price crash, today, the country has very low levels of unemployment and very well-capitalised banks - because the Bank of England subsequently forced them to keep lots of cash in their banks to cover downturns. Therefore, I don’t anticipate the kind of double-digit house price decreases seen 14 years ago.

You may be a potential first-time buyer, a homeowner looking at your options on re-mortgaging or selling, or, in fact, anyone with questions, don't hesitate to drop us a line.

One of our local property experts will gladly share our thoughts and opinions without cost or obligation.

Statistics from Land Registry, Land Registry, ZPG plc, 'Home' website, Office of National Statistics and Denton House Research