Spiralling living costs including sharp rises in energy bills and interest rate hikes are continuing to impact prospective house hunters, with 44% of families who were looking to upsize and 50% of first-time buyers having to make adjustments.
The data, collated from a new survey by property firm, Savills, revealed that home movers who are most reliant on borrowing are starting to reduce their budgets due to increases in the cost of living and the threat of further interest rate rises.
Over 1,000 prospective buyers were surveyed at the end of August 2022 revealing that commitment to move has also fallen, at least in the short term. The net balance of people who are more committed to moving in the next three months has fallen to -1.7%, while a net balance of +7.1% feels more committed to moving in the next year (vs. +22% in April 2022).
However, sentiment remains more positive for the medium term, with a net balance of +15% stating that they are more committed to moving in the next two years, which is on par with last Autumn (September 2021).
Upsizers vs downsizers
Those looking to enter the market or extend borrowing are, unsurprisingly the most cautious when asked about commitment to move within the next six months. This caution is most keenly expressed by those looking to upsize (net balance of -10%) and those in the market for more discretionary purchases such as a second home (-31%) or an investment opportunity (-8.7%), according to the data.
However, not all buyers are deterred by the tougher economic outlook, with some buyer groups increasingly committed to their moves. Those looking to downsize (+6.6%), relocate (+7.4%) or those who are currently living in regional parts of the UK (+3.9%) are more committed to moving over the next 6 months.
Lack of stock remains an issue, too. Still, 54% of buyers say that a lack of stock is significantly inhibiting their ability to purchase a property. This is only slightly down from 63% in April. This issue is most pronounced at the top end of the market with 88% looking to purchase a property above £1 million hindered by a lack of suitable properties.
Impact of interest rates and increased cost of living
For the majority of buyers, the amount they plan to spend on their new home hasn’t changed. 54% said that there would be no effect and that they plan to use the same source of funding. While 7.8% plan to spend the same overall but are likely to reduce the amount they borrow for the purchase, dipping deeper into their equity pots to fund their purchase.
However, recent interest rate rises and the increased cost of living have also started to impact buyer budgets in some areas of the market. 29% of prospective buyers surveyed stated that they have reduced their budgets in response to these factors.
This is most true for those more reliant on borrowing – including 50% of those wanting to take the first step onto the property ladder, and 44% of those who are looking to upsize.
Cohorts that reported as being least impacted were downsizers, with 66% keeping both their budget and funding the same, and those moving outside of London (59%).
Frances McDonald, research analyst at Savills, comments: “Despite transactions remaining robust over the summer months, there’s now certainly less urgency in the market, with rising costs of debt impinging on the budgets of those most reliant on a mortgage. Increased costs of living are also making buyers much more conscious when it comes to how much they are willing to spend."
“Ultimately, in the short term, the market will be predominately driven by homeowner need, rather than lifestyle influences which drove the market during the pandemic. Especially now that lockdowns are fading into distant memory.
“As a result, after more than two years of runaway house price growth, sellers will need to become much more realistic when it comes to pricing their home, especially as more stock comes onto the market.
Frances concludes: “As and when inflation has been tamed, the cost of debt eases and we see a pick-up in both domestic and global economic growth, we can expect price growth to return to these markets, particularly given the strength of buyers’ underlying commitment to move over the medium term.”
