"The continuing twists and turns of persistent inflation and higher mortgage rates have posed some additional challenges for the market"
The latest market analysis from Rightmove shows that the average price of property coming to market this month fell to £371,907, a dip of 0.2% and marginally below the 0% norm for this time of year. Despite this, price trends continue to show resilience and are stronger than most expected during the first half of the year, with average asking prices now 2.6% higher than in January.
However, sales are being impacted by continuing rate rises as the Bank of England tries to reign in surprisingly sticky inflation figures. Rightmove's data shows that the number of sales agreed in June is now 12% behind 2019’s more normal market level, contrasting with the surprisingly strong first five months of the year.
Yet buyer demand remains resilient and is 3% higher than at this time in 2019. Agents on the ground are reporting that homes which are priced 'correctly' are still attracting motivated buyers due to the shortage of property for sale compared to historic norms.
Rightmove's Tim Bannister said: “The interest-rate brakes being applied more strongly to slow the economy are now beginning to bite in the housing market. While prices and sales bounced back this year much more strongly than most expected, the unexpectedly stubborn inflation figures and the surprise of further mortgage rate rises when many felt that they had stabilised, have contributed to the fall in prices and number of sales agreed.
"However, buyer demand remains resilient at 3% above 2019’s more normal market levels, buoyed by a shortage of quality property for sale and ongoing housing needs. First-time buyers, trader-uppers and downsizers with higher deposits and lower mortgage requirements appear to be still keenly searching the market, not wanting to miss out on the right property that is not over-priced and that they can still afford.”
Larger home sectors most impacted by lower levels of agreed sales
The number of sales agreed in June in the mid-market second-stepper sector and the top-of-the-ladder sector is 14% behind 2019’s level. Some discretionary movers in these sectors who are trading up and are substantially increasing their mortgages are likely reassessing their budgets, waiting to see which direction mortgage rates head in the coming months.
The smaller home, two bedrooms and fewer market sectors have been less impacted, with June’s sales agreed figure 9% below 2019’s level. This typical first-time buyer sector has held up most strongly throughout the first half of the year, highlighting an ongoing determination from many first-time buyers to navigate the unsettled mortgage market and get onto the ladder, particularly with rents at record levels.
It is also an indication of some people deciding to retire early and downsize to a smaller property, perhaps to release some equity from their home for lifestyle or early retirement, or to gift a deposit to family first-time buyers.
Despite this easing in sales levels, there is no glut of property choices, with the number of available properties for sale 12% lower than at the same time in 2019. Agents report that even with market challenges, homes priced correctly in line with local market conditions are still attracting strong interest from motivated buyers keen to move.
However, the dangers of sellers initially over-pricing and harming their prospects of finding a buyer are highlighted by the latest Rightmove research. Properties that need a reduction in asking price are more than 10% less likely to find a buyer than those that were priced right from the start. With the chances of selling already lower due to current market conditions, initial over-pricing reduces those chances markedly further.
The latest snapshot from Rightmove’s mortgage tracker shows that the average rate for a five-year fixed, 85% Loan-To-Value mortgage is now 5.69%, up by 0.49% compared to this time last month but still below October’s 5.89% following the mini-Budget.
Tim Bannister comments: “The continuing twists and turns of persistent inflation and higher mortgage rates have posed some additional challenges for the market. Agents report that some movers are pausing until there is more certainty that mortgage rates have stabilised, as well as reviewing how higher costs affect their plans.
"However, there remains a large volume of motivated buyers who can factor rate rises into their budgets and are continuing to enquire about homes for sale, which is keeping the market functioning, albeit now with lower sales levels than at this time in 2019.
He concludes: "Sellers who price right the first time, rather than starting with too high an asking price only to reduce later, have a much better chance of attracting one of these motivated buyers, and a good local agent will provide sellers with accurate evidence of prices that are being achieved in their area.”
Chris Druce, senior research analyst at Knight Frank, said: “Buyers have become increasingly cautious as expectations about the peak for rates have been revised upwards. It means that the residential property market is as price sensitive as it has been since before the pandemic.
“While we are unlikely to see a material change in confidence levels until we have surety about how high borrowing costs will go, deals are still being struck and pricing is proving resilient.
“Ultimately, we expect prices to fall by 10% over this year and next as more pain enters the system as more fixed-rate mortgages are renewed at higher rates. However, strong wage growth, low unemployment, the forbearance of lenders and the availability of longer fixed-rate mortgages will safeguard against larger price falls, and provide the platform for a resilient performance in the housing market once the extent of the rate rises is known.”
Tomer Aboody, director of property lender MT Finance, says: "With continued rate rises negatively impacting affordability, many would-be buyers are no longer even able to consider purchasing and the market is slowing accordingly.
"Sellers not selling due to fear of being knocked down on their expected price and fewer buyers around due to confidence and lack of affordability, is contributing to falling transaction levels and pricing.
"Further uncertainty as to whether inflation will reduce quickly enough, combined with the potential for more rate hikes, is making the market unpredictable with no breathing space in sight. Now seems an opportune time for the Bank of England to pause the rises and see how the market, which has already been squeezed, responds."
Jeremy Leaf, north London estate agent and a former RICS residential chairman says: "These figures bear out what we’ve been seeing in our offices, particularly following the most recent increases in the base rate.
"There are still plenty of especially cash or equity-rich buyers but they’re taking their time to view a slowly-increasing choice of properties.
"It’s only then – including after carrying out their own stress testing – that they’re making what are often cheeky offers.
"On the other hand, most sellers seem in no rush to accept significant discounts, at least for the time being."
