Activity levels are down in the face of economic headwinds. With forecasts that the Bank of England base rate is close to its peak, some affordability pressures should abate, and a greater stability and increasing confidence should emerge within the housing market in the next few months.
Average house prices fell 0.8% month-on-month to £259,153, with the annual rate of price growth falling to –5.3%, down from –3.5% in July (Nationwide). Given the rise in borrowing costs and economic pressures in recent months, as well as a traditional summer slowdown, the fall is unsurprising. As we come into autumn, demand is expected to build again, with a soft landing expected to play out, supported by strong wage growth, lockdown savings and increasing flexibility from mortgage lenders. Home sales are predicted to rebound in the first quarter of 2024 (deVere Group). Transaction numbers are proving resilient, with 86,500 sales taking place in July, up 0.8% on the previous month, although 16.3% down on last year’s higher levels (HMRC). Zoopla estimates that the number of housing sales completing in 2023 is on track to be more than a fifth lower than in 2022, with around one million homes expecting to change hands in the UK this year. The supply of properties remains constrained, standing at 10% lower than the same time in 2019, in part preventing larger house price falls this year (Rightmove).
Mortgage approvals have improved since the start of the year, although remaining 21% below the average for the seven years prior to the pandemic. There were 49,400 approvals in July, down from 54,605 in June (Bank of England). First-time buyer purchases and homemover purchases were down by 28% and 30% respectively, largely due to uncertainty in the market and affordability concerns (UK Finance). However, a brightening economic outlook means mortgage rates appear to be on the downward trend, with major banks cutting rates again and increasing flexibility on
deals to ease some pressure on UK home buyers. The fiveyear fixed rate is at 6.19%, down from 6.37% at the end of July (Moneyfacts), with rates expected to fall further in the year.
With high costs of borrowing, cautious buyers are coming up against optimistic sellers, who have yet to accept the cooling of the UK market. The pendulum is swinging in favour of buyers, with 70% of agents surveyed saying it is a buyer’s market and only 3% saying sellers are more in control (Dataloft Inform Poll of Subscribers). In light of high mortgage rates and living costs, smaller less expensive properties are in demand. Flats have remained relatively more affordable, with average prices having risen by just 13% since the start of the pandemic, compared to 23% for detached properties (Nationwide).
As interest rates have climbed, the market has been supported by an increasing proportion of cash buyers. Based on H1 trends, cash sales are expected to fall only 1% over 2023 compared to 2022 levels, however the number of mortgaged sales is forecast to be 28% lower due to higher mortgage rates (Zoopla). Outright home ownership, with no mortgage, is the largest group of property owners, with 8.8 million homes (36%) in England owned outright, sheltering owners from the mortgage rate storm (Greenresi). Partly due to less reliance on the mortgage market, prime market annual price growth is resilient, currently at 5%, and positive in all but one region of England and Wales. The average price of a property in the prime market stands at £1,296,404, 31% higher than the same time in 2019.
£459,420 £1,230,000 £1,781,811