Housing market insight report for Housebuilders- Oct 2022.pdf

Housing market insight report for Housebuilders

Welcome to Moving made easy’s inaugural housing market insight report for Housebuilders

This quarter we examine the impact of rising interest rates and inflation on the second-hand and new-build sales market, the significance of softening in buyer demand, emerging issues in the property chain, and what we can expect this autumn as the cost of living crisis continues.

It is worth noting that with further interest rate rises on the horizon conditions are expected to remain volatile as the government introduces a different economic approach.

Key Takeaways

Buyer demand slows and asking prices dip

Seasonality welcomed back to market

Time to offer extends as new listings rise giving buyers more choice

Early signs of tension creeping into property chains

Concerns grow that cost of living pressures will impact the number of new buyers entering the market

Thanks for reading the Housing market insight report for Housebuilders.

I’m Jessica, national sales director, property services, Simplify. I’ve had the privilege of working with housebuilders for over 10 years. In that time, I’ve learnt a lot from clients and colleagues in the industry and know how important it is to understand the effects the winds of the economy will have on buyer behaviour, sales and approaches to the market.

Our Contributors

Sales directors and sales managers tell me that a brief, succinct and informative précis of current economic conditions and what they might mean for the housing industry is of great value.

That’s why we’ve put this quarterly newsletter together. It aims to take current economic conditions and look at the implications for you, at the forefront of new build sales.

Group sales director, Redrow Homes

James Holmear

CEO of Propertymark

Nathan Emerson

CEO of Manchester-based housebuilder, Cube Homes

National sales directorproperty services, Simplify

Chris Heath

Jessica Moreau

Are buyers’ budgets under pressure?

Mortgage borrowing costs continued their upward march as the Bank of England voted to increase the base from 1.75% to 2.25% in September. Average two and five-year fixed rates are now above 6% up from around 2.5% this time last year, according to Moneyfacts.

Looming inflation rises

Those on a fixed rate mortgage have been protected from base rate increases so far. Inflation, however, is a different story. Now at 9.9% and predicted to rise further, the cost-ofliving crisis is a challenge facing every household

These pressures have started to impact the desire to move, with September showing an ease in demand. We expect this to weaken further as economic pressure grows

To ease the burden on households, a raft of tax cuts were announced by the then incoming chancellor Kwasi Kwarteng in his September ‘mini budget’ which included changes to stamp duty. The threshold at which stamp duty becomes payable has been raised from £125,000 to £250,000 and first-time buyers will not have to pay stamp duty on any property worth £425,000 or less. Previously this was capped at £300,000.

With further interest rate rises on the horizon conditions are expected to remain volatile as the government introduces a different economic approach.

Key Takeaways

Nathan’s take

already seen

taking longer.

the length of

it’s too early to tell what this

naturally get a slowdown over

First-time buyers with a 10% deposit are paying on average more than £1,000 a month for the first time

So we’ll have to wait and see if this continues in the autumn

is a traditionally busier time for property sales.

cost-of-living pressures will start to show through in the housing market and it will naturally factor into buyers’ decision making.

with enough disposable income can make changes to their everyday spending to minimise the impact of inflation. But once you’ve experienced three or four quarters of higher bills movers may start to change focus.

• Cost of living and inflation rises yet to impact desire to move home but it’s a matter of time

• Concerns growing about reduced number of buyers entering market in autumn

The average monthly amount spent on a first-time buyer home

-

August

Question mark over affordability

Mortgage availability, particularly for borrowers who need high loan-to-value lending in the new-build market, remains strong. Lenders have been allowed to relax their stress tests which is good news for borrowers and despite recent rate rises there are still competitive mortgage deals to be had.

Inflation uncertainty causing concern

The most uncertain picture, however, is how inflation will impact mortgage affordability.

Energy bills will be capped at £2,500 for an average household from October. While this may have the short-term impact of lowering inflation, over the long-term it could lead to slightly stronger inflation according to the Bank of England. There is a strong expectation that the Bank will vote for further interest rate rises.

Chris’s view CEO of Manchester-based housebuilder, Cube Homes

If you need or want to move you still will but it is the extent to which you can fulfil your requirements that could change.

It might be that you want to move but you can’t afford to spend as much. Or you might want to live in a certain location so something else has to give.

Key Takeaways

• Uncertainty is entering the mortgage market

• Rising inflation will be factored into mortgage affordability calculators

Rising inflation will be factored into mortgage affordability calculators. A potential headwind for the market is that people will be able to borrow less as costs such as rising energy bills are considered.

Group sales director, Redrow Homes

James Holmear

Tide turning on sellers?

Buyer demand grew in august after a period of cooling. This may be a sign that the market is returning to its seasonal trends of a summer slowdown followed by a traditional busier period into autumn.

Propertymark’s latest report shows that in August the number of new buyers registering per estate agency branch had risen after a decline over the preceding three months.

In terms of stock levels August saw the strongest figures since April 2021.

In spite of well publicised economic headwinds, we are seeing confidence amongst buyers, an indication of the enduring value placed on ‘bricks and mortar’.

Heading towards a more stable market

If demand remains cool, estate agents’ stock levels should gradually start to improve, relieving upwards pressure on prices. Although we’re heading towards a more stable market, we’re not there yet. Estate agents’ stock of homes to buy remains severely depleted so a rebalance will take time. The ongoing imbalance of supply and demand is expected to continue to prop up house prices Nonetheless, the shift towards a more normal market has been welcomed by the industry.

The consensus is that a levelling out of prices was needed to protect the value of homes and prevent a more severe impact on house prices in a year to 18 months.

James says

It’s the first time in two and a half years we’ve seen seasonality return. If you look at comparisons to 2019 you can see a lot of positives, demand is up double digits.

For the last 24 months we’ve been operating in a unprecedented market. The whole industry has been in order-taking mode. It’s been fantastic from a sales perspective, notwithstanding challenges with materials, supply and planning, but it’s not sustainable.

We started to see some normalisation re-enter our market from the late spring. Now we need to be mindful that we’re operating in a more competitive market where people are feeling a certain way about the cost-of-living crisis. Building relationships, listening and being empathetic towards buyers’ concerns is key.

Key Takeaways

• Signs of a stabilising housing market, although we’re not there yet

• House builders now operating in more competitive market

August new listings but 6% down on 2019 up 12% YoY

A stable market is exactly what new homes builders need. There’s confidence that prices aren’t going to drop off a cliff edge and agents are still seeing lots of demand.

Chief executive of Propertymark

Nathan Emerson

Group sales director, Redrow Homes

Driving a harder bargain

Both Zoopla and Rightmove report a fall in month on month asking prices. With fewer buyers around this summer, as they focus on holidays instead of moving home, sellers must price their homes more competitively to attract an offer. We’ll have to wait until the autumn to find out if there’s more to this slight decline than meets the eye.

Not only are sellers pricing homes more competitively, that the art of negotiation has made a comeback after a distinct absence since 2020. Homebuyers are haggling once again.

Key Takeaways

• Sellers becoming more realistic about pricing

• Buyer demand and property supply will stop collapse in prices

Five year asking price trend

£380,000

£320,000

£280,000 £300,000

£260,000

Below asking price

In June, one in 25 listings across Zoopla were reduced by more than 5% of the initial asking price compared to one in 32 at the end of Q1. Meanwhile Propertymark notes that 36% of agency branches are now reporting that most sales were completed below asking price compared to a low of just 15 per cent in March.

Although the scales are beginning to tip slightly in the buyer’s direction, there is still a huge imbalance between buyer demand and property supply which will stop a collapse in prices. Zoopla forecasts a 5% annual rise by the end of 2022.

Chris’s view

of Manchester-based housebuilder, Cube Homes

Sellers in the second-hand sector are more likely to chance their arm in an inflated market by upping house prices than in the new-build sector and we’re now seeing some of that froth coming off.

The reduction in asking prices is because sellers are accepting their homes are overpriced and they have reached the top of the market. If they don’t reduce the price they won’t sell it.

Will this impact the price those sellers can then pay for a new-build home? No, I don’t think so. If you’re upsizing and have built up a good level of equity, a small reduction in that equity should not impact your ability to afford the mortgage you’ve applied for.

Transaction tensions grow

The view on the ground is that the current economic pressures could impact the number of buyers coming into the market.

But delays in construction and conveyancing and a nervousness among younger borrowers further down the chain are causing tensions to rise to the surface.

Higher costs for the buyer

The industry has witnessed a few cases of customers struggling to get mortgage offers renewed after they’ve expired because of delays on site. Mortgage lenders are insisting on re-underwriting cases on higher interest rates in line with base rate changes rather than extending the offer on the same terms for longer. This results in higher costs for the borrower. So far, the setback has not resulted in cancellations because competition for new homes remains high.

Key Takeaways

The threat of delays

Conveyancing delays remain an issue. From the time a home is marked sale agreed, it currently takes 150 days on average to reach completion day. The is 50 days longer than during the same period in 2019.

Even without construction delays – borrowers are in danger of losing a low mortgage deal secured earlier this year due to legal log jams.

But compared to June, when the average offer to exchange time was almost five months, service levels are moving in the right direction.

To help speed things up, sales teams suggest coaching customers on how to manage their conveyancer to get the best service or to choose a solicitor from their recommended panel.

Early signs of nervous behaviour have been spotted in younger buyers at the bottom of the chain putting strain on those at the top.

Our homes are near the top of the chain which means we are beholden on the sales chain below us.

We want to see great liquidity in the second-hand sales market from first-time buyers up.

What we’re seeing in the secondhand market, anecdotally, is that more buyers are getting a little nervous and pulling out of sales further down chains

Some customers are saying they want to buy a home from us but they have work to do within their chain before they can proceed. This may be down to cost-of-living pressures whereby the under 30s, typically first-time buyers, are most impacted by rising inflation.

sales director, Redrow Homes

says

are starting to pose problems for buyers

ready to

over new-build

for

All eyes on autumn

What happens next is very much down to variable factors at play in our economy and as we look towards the end of the year, the outlook remains uncertain.

Further interest rate rises are expected and despite the lower price cap energy bills, along with food and fuel costs, remain high.

How the cost-of-living pressures impact buyers’ desire and ability to move as well, as the the impact of the stamp duty changes, are factors to watch.

Key Takeaways

• Uncertainties over living costs impacting buyer decision-making

• Rising mortgage costs making buyers pause for thought

Our experts’ views:

It will be interesting to see to what extent discretionary spending gets impacted by rising interest rates and energy costs and where within that pot of non-essential spending housing will sit.

Rising mortgage costs are going to make people pause and take breath. Many people have never known high mortgage costs, but these rises are not high by historic standards.

The desire to move won’t go away, but the emerging situation might make people pause to see what’s going to happen. It may just be a six-to-nine-month period.

Nathan says

As pressure mounts on buyers’ everyday budgets they will be more cautious about how much they borrow and for how long. Fixed rates give certainty over mortgage costs but now households are dealing with uncertainties like rising energy and fuel costs. When people no longer have high levels of disposable income that will naturally fall through into buyers’ psyche.

James says

I don’t think it will affect buyers already in the market, they will have already come to terms with any budget pressures.

But I think this pressure will bring fewer buyers into the market. It’s about how people feel. There are concerns about what is to come in the autumn, winter and then again in April when the energy price cap is reviewed once more.

Chris says CEO of Manchester-based housebuilder, Cube Homes

Group sales director, Redrow Homes

Chief executive of Propertymark

Paul Martin