Several months of economic uncertainty followed by a succession of interest rate hikes is finally set to take its toll on a market that has until now remained unshakeable, data from several sources has suggested.
Until recently, transactions continued to soar despite the cost of living squeeze, and house prices also remained firmly on the up – demand had not faltered and the market remained active and stable.
A series of interest rate rises has, however, changed the landscape of the market. IRN Legal estimate as many as 1,600 mortgage products were subsequently withdrawn, pulling the rug from beneath the feet of many buyers.
In their latest UK Residential Market Survey, RICS said the rise in rates eliminates much – if not all – of the SDLT cut’s impact on affordability, and with new buyer interest having fallen for the fifth consecutive month in September, the industry body declared that “storm clouds are clearly visible” over the housing market.
New buyer interest fell again in September, with a net balance of -36% of respondents to RICS’ survey citing a fall in enquiries. New instructions to sell also continued to fall, with stock levels remaining at historic lows.
Estate agents (on average) are holding just 34 residential properties on their books, and the pipeline appears to have deteriorated further, with the net balance for new market appraisals dropping to -20% (down from -3% in August).
As the market loses further momentum, sales have unsurprisingly fallen over the month, with the September figure the most negative reading since May 2020 and the number of sales having now fallen for five months in a row. Looking ahead, sales expectations over the next three months and the 12- month sales predictions also remain negative.
RICS suggested that, while house prices have been being propped up by a lack of supply most recently, the data is notably less positive than previously and continues the trend since April 2022 of an easing in house price growth (it was net balance of +78% five months ago). This trend is visible across the whole of the UK.
Going forward, 12-month price expectations have now turned slightly negative, with respondents citing the expected further substantial rises in mortgage rates as a factor putting pressure on the market over the year ahead. At the national level, a net balance of -18% of respondents now predict a slight dip in prices over the coming twelve months, down from a reading of +3% last time out.
“The turmoil in mortgage markets in recent weeks has compounded the increasing level of economic uncertainty resulting from higher energy bills and the wider cost of living crisis, in shifting the dial in the housing market,” said Simon Rubinsohn, Chief Economist at RICS.
A slightly more mixed picture is painted in Landmark Information Group’s Q3 Property Trends Report. While the report found that completions are down 12% in Q3 2022 compared with 2019, the report highlights that the market is not yet seeing signs of the impending fall in demand that has been suggested will follow the current economic uncertainty, with demand still stable at the end the quarter. Supply and demand also became more closely matched across the third quarter of the year, with supply up 5% on September 2019 levels at the end of the quarter.
However, early Q4 data suggests conveyancing and lending processes will come under pressure in the next quarter, in the face of current concerns over mortgage availability and affordability. The newly released report also shows potential signs of the cost of living crisis starting to impact consumer confidence, with Q3 SSTC down 2% on last quarter.
“Whilst Q3 property market conditions show continued return to pre-pandemic levels, they are likely only the ‘calm before the storm’ – with the tail end of the quarter showing signs of headwinds yet to hit,” said Simon Brown, CEO, Landmark Information Group, adding:
“The fragmented property transactions pipeline will continue to come under pressure, faced with continued interest rate movement, lending pressures, and an expected drop in demand in early Q4. Despite this, the positive increase in supply levels during Q3 could signal a potential reversal of the restricted supply we have seen during the past year. But only Q4 data will be able to tell the full story, as current instability is likely to derail this trend.”
Rightmove also provided a mixed update on the market. While the average price of a property coming to market has risen to a striking record of £371,158, they concede that it will take time for any impact of rising rates to filter through to house prices.
Indeed, the portal said the rapid rise in average mortgage interest rates “has understandably caused some would-be home-movers to pause their plans and wait to see how the next few weeks and months unfold”.
Compared with the same two weeks last year, overall demand is down 15% but it is still 20% higher than the more normal market of 2019.
Rightmove said first-time buyers have been the hardest hit as higher rates may prove to be a step too far for those who were already stretching their finances. Demand in the first-time buyer sector is down by 21% in the last two weeks compared to the same two weeks last year, though it is still up 24% compared to the more normal market of 2019.
Fall-throughs are not, however, rising as a result of the squeeze on affordability, suggest Rightmove, with only 3.1% of sales agreed having fallen through in the two weeks since the mini-budget, which is in line with the 3.0% over the same two weeks during 2019. Estate agents are also reporting that those who managed to secure a mortgage offer at a lower rate are rushing to complete their purchase before that lower rate offer expires.