How has the purchasing power of buyers and investors been impacted in the US property market and how does this compare to the UK housing sector?
Mortgage rates are increasing in the US property market, with average rates having risen by nearly a whole percentage point since the middle of September. The daily average for a 30-year fixed-rate mortgage increased to 7% on 28th October. This is the first time rates have hit 7% since the beginning of the summer.
Because of this, a buyer with a $3,000 monthly budget has lost $33,250 in purchasing power across the past six weeks alone, according to a recent report from Redfin. With this budget, a homebuyer could have purchased a $475,750 property in the US property market with a 6.11% rate, which was the average on 17th September. However, now they would only be able to afford a property at the value of $442,500 in the US property market.
However, that same buyer has $17,000 more purchasing power than they would have had in April, which is when mortgage rates peaked at 7.5%. The recent increase in interest rates is likely disappointing for investors and buyers in the US property market who missed out on the short window where rates were closer to 6%.
Why are mortgage rates rising in the US property market?
Mortgage rates are jumping in the US property market predominantly due to investors becoming more worried about government spending following the presidential election on 5th November. Housing affordability has also been found to be a top voting issue.
At the U.S. Federal Reserve’s next meeting just after the election, Redfin is predicting it will make a small interest-rate cut — instead of a big one. Investors and buyers alike will be waiting to find out how this decision and the results of the election will impact the US property market.
Chen Zhao, Economic Research Lead at Redfin, said: “My advice for buyers is to focus on finding a house they love and try to negotiate on things they have some control over, like the sale price and home repairs.
“Sellers should know Redfin agents are reporting that there are buyers out there, but they’re mostly looking for move-in ready homes in good condition.”
What’s happening in the UK housing sector?
In the UK housing sector, buyers and investors have been able to enjoy lower borrowing costs compared to the previous 18 months. Some lenders have been reducing mortgage rates to sustain momentum in the lending sector. Recent data from Moneyfacts revealed that buy-to-let mortgage rates have hit a two-year low.
Both the average two- and five-year fixed rates fell month-on-month to 5.24% in October. This is considerably lower than the average rates from one year ago at 6.40% for two-year and 6.32% for five-year. Additionally, the number of both fixed and variable products available is at its highest level since June 2022.
With the base interest rate set at 5%, the next Bank of England Rate meeting is on 7th November. There has been considerable speculation in the industry about this with many believing there will be an interest rate cut as inflation recently dropped below the Bank’s 2% target, having fallen to 1.7%.
Some economists have even predicted two interest rate cuts before the end of the year to reflect the improving direction of UK inflation. However, interest rates have fluctuated this past week in the wake of the Autumn Budget announced on 30th November.
Announced within the statement, investors will pay a higher rate of stamp duty from 31st October with the charge for second homes and investments having risen from 3% to 5%. This will likely impact decision-making among investors for current and prospective buyers.
Will overseas buyers continue to invest in UK property?
As Chancellor Rachel Reeves announced the Budget Statement, the pound fell against the dollar by around 0.5% to $1.2950. However, it recovered after the speech and ended the session flat at around $1.3030. At the same time, sterling fell 0.4% against the euro with strong GDP figures from the Eurozone.
With the current conditions, US property investors are still able to enjoy favourable exchange rates compared to when the pound was performing more strongly in previous years. Additionally, as the economy and housing sector have continued to show positive signs across the past few months, this could attract even more overseas investors to buy UK property.
If you’re a US property investor looking to invest in the UK, let BuyAssociation help you find the right property investment opportunity for you. For more information, get in touch today.
