As we enter the final quarter of the year, the market continues to adjust to higher borrowing costs. Interest rates being unexpectedly held at 5.25% is a good sign for the housing market, and sentiment should slowly improve as buyers and sellers increasingly know where they stand.
The average house price in September was £257,808, showing no monthly change compared to August (Nationwide). This is an improvement on the 0.4% decline that economists had previously anticipated for the same period, house prices proving resilient in the face of high interest rates. Regions less stretched on affordability have seen shallower falls. Spotlighting London, the decline in prices slowed in the last three months to the end of September to 3.8% year-on-year, indicating the capital is holding up well in tough conditions (Nationwide). The prime market remains particularly strong, with positive year-on-year growth of 2.4%. The average price of a property in the prime market is now £1,271,287, and all regions bar one had positive annual growth.
Mortgage market activity, an indicator of future demand, dipped in August, with 45,000 approvals, 8% lower than the previous month. This is a 14% improvement on the start of the year, although it remains below the long-term average. Gross mortgage lending rose from £19.1 billion in July to £19.7 billion in August (Bank of England). With increasing competition between lenders as we move through autumn, activity should pick up again. Consumer confidence rose to -21 in September 2023 from –25 in August, the highest reading since January 2022, and defying expectations of a slowdown to -27 (GfK Consumer Confidence Tracker). This is boosted by the prospect of lower mortgage rates, with Zoopla recording an uptick in buyer demand, up 12% since the August Bank Holiday weekend. Transaction numbers showed a small uptick on the previous month, with
87,000 taking place in August, albeit 16% lower than last year’s higher levels (HMRC). Buyers looking to move are highly motivated. Three-quarters of buyers in August were confident they’d purchase a property within the next three months (OnTheMarket).
Affordability for those relying on mortgages is still a challenge after sustained high interest rates. Buyers now entering the market are particularly conscious of their budget and are careful not to overstretch themselves. 80% more homes are available for sale than in September 2021. This increased choice means that there may be headroom for buyers to negotiate with sellers, putting pressure on asking prices. The average discount is 4.2% of the asking price, the largest since March 2019 (Zoopla).
Affordability remains stretched but is slowly improving, with mortgage rates continuing to fall on the back of dipping swap rates. The average five-year fixed rate has dropped below 6%, after reaching 6.38% in August (Moneyfacts). Those with a low loan to value or no mortgage are in a particularly strong position. Inflation is steadily easing, forecast to end 2024 at 2.6% (HM Treasury Consensus Forecast), improving the outlook for the Bank Rate, which is thought to be at or very close to its peak. Buyers increasingly know where they stand and sentiment should improve as volatility reduces. Prices are forecast to soften into 2024, then set to rebound by 9% between 2025 and 2027 (HM Treasury Consensus Forecast).
£456,127 £1,210,000 £1,751,085