Data reveals a stark decrease in the housing market with 2023 anticipated to see the smallest number of home sales since 2012. Zoopla’s fresh House Price Index discloses that the forecast for 2023 is set at one million sale completions. This slump is equivalent to the average household moving just once every 23 years, a rise of six years since 2021.
While cash buyers remain almost consistent, with a projected minor decline of 1% this year compared to 2022, mortgaged sales are facing the brunt. Projections show they’ll be slashed by 28%. Such a significant drop is attributed to the surge in mortgage rates.
For existing homeowners who rely on mortgages, making up a third of annual sales, the decision is clear: wait until there’s a better forecast for mortgage rates. This shift in mindset means that new sales for three and four-bedroom homes have dipped by up to 40% in July when matched against the five-year average for the same period. Sales for smaller, more affordable homes have also taken a hit, though not as severely.
Furthermore, the buy-to-let market is taking a hit. Mortgaged BTL purchases now represent just 8% of annual sales. A typical BTL buyer in southern England is expected to provide 40-50% of the property value as equity to make the math work. This, given a gross rental yield under 5% and below the base rate, doesn’t make for an attractive proposition.
However, on a brighter note, the issue of housing affordability is seeing a positive shift. With earnings growing at a brisk 7% in the last year, the house price to earnings index predicts an improvement of 9-10% for 2023. By the close of this year, this ratio should mirror the 20-year average, registering at 6.3x. Notably, London is witnessing the most significant uplift in affordability. After a long wait of 11 years, the capital’s price to earnings ratio is predicted to dip into single digits, courtesy of wages outpacing house price growth.
Richard Donnell, Executive Director at Zoopla, commented: “House price growth has slowed rapidly over the last year as demand weakens in the face of higher mortgage rates. Prices are falling more in southern England where higher mortgage rates have priced more people out of the housing market, weakening demand. While UK house prices are 0.1% higher over the year, it is the number of sales that have been hit hardest by higher borrowing costs, especially amongst mortgage reliant buyers. Cash buyers are more immune and on track to account for more than one in three sales in 2023. Mortgage rates have started to fall slowly but rates need to fall below 5% before we see an increased appetite to move home in the second half of 2023.”
Carl Jenkinson, Director at Venture Properties, voiced his insights: “We are still seeing strong activity in the market despite some turbulent months due to mortgage rate increases, which has in turn made some clients more cautious. However, our prices have now stabilised with a little more competition on the market, and our location is still seeing great signs of growth with buyers thanks to continued investment from employers and companies relocating to the North. We have already seen many lenders reducing rates over the last few weeks and expect this to be the same over the coming weeks, which is making some clients become ‘rate chasers’ waiting for the best deals. Our buy to let investors have fallen slightly due to the mortgage rates and the criteria involved, although our rental stock remains in high demand.”
Nathan Emerson, CEO of Propertymark said: “We know that house prices are thankfully adjusting to more sensible levels alongside increases to people’s earnings which is playing its part in increasing homebuyers’ affordability, helping soften the blow of rising interest rates.
Our member agents report sales remaining buoyant, however, the number of viewings and valuations have dipped slightly, indicating a shift to only the more serious homebuyers and sellers remaining proactive in the market. Those properties that are currently for sale with motivated vendors in line are selling quickly.”
