Five major banks repriced fixed rates for the second time in a fortnight last week, as swap rates pushed above 4.70%. The Moneyfacts average on a two year fix has gone from 4.84% in March to 5.73% in mid-September.
Most of the commentary has treated that as a cost story. Monthly payments up, borrowers worse off. True, and the less useful half.
The more useful half is that it is a capacity story. The same household, same salary, same deposit, qualifies for less than it did in spring. Nothing about them changed. The amount a lender will hand them did.
Which does something specific to a property that has been on the market since spring, and it is not what most people assume. The house has not become less desirable. The pool of people who could have bought it at that number has been quietly reduced, and the ones who remain are approved for less than the ones who were looking in April.
So the price was not wrong when it was set. It has been made wrong by something outside the property, which is a harder conversation to have with a vendor than an honest mistake.
There is a second-order effect I think is being missed, and it matters most to anyone pricing.
Comparables are backward-looking. That is fine and largely harmless when borrowing costs are flat, because the transaction you are citing was financed on roughly the same terms as the one you are pricing. In a repricing period it stops being harmless. A comparable that completed in June was agreed in spring and underwritten against a rate the best part of a percentage point lower. The evidence is real, the sale happened, and it still overstates what the same house would achieve today.
Which means the ordinary, careful, evidence-based method quietly becomes optimistic without anyone deciding to be optimistic.
I do not think the answer is to stop using comparables. There is nothing better. The answer is to ask a second question about each one.
When you pull comparables this autumn, the useful question is not only what the last one sold for. It is when the buyer of that one was approved, and at what rate. If the answer is spring, the number in front of you describes a market that has since closed.
Co-founder of Propalt and a property investor and developer for 20 years
