The number of UK housing transactions completing over 2023 is forecast to be over a fifth lower than 2022 and will represent the lowest figure since 2012.
This comes according to Zoopla, who say the market is on track to hit one million sales completions in 2023, equivalent to the average household moving once every 23 years, up six years since 2021.
The property portal said this is driven by a drop of nearly a third (28%) in mortgaged sales compared with H1 last year, while cash sales have fallen just 1% in the same period.
This trend is reflected on a more recent basis, with the latest HM Revenue & Customs Data revealing on Thursday that the provisional non-seasonally adjusted estimate of the number of UK residential transactions in July 2023 is 86,190, 22% lower than July 2022 and 9% lower than June 2023.
UK Finance’s latest Household Finance Review corroborates these findings, with the former reporting that first-time buyer purchases and home mover purchases were down 28% and 30% respectively in Q2 2023 compared to the same period last year.
Unsurprisingly, Zoopla said lower mortgage rates will be key to improved demand and more sales in 2024. They suggest existing homeowners using a mortgage – who tend to account for a third of annual sales – are more likely to wait to move until the outlook for mortgage rates improves.
This, it’s said, is evidenced by the fact new sales of three and four bed homes are down by up to 40% in July compared to the same period over the last five years, while sales of smaller – and therefore more affordable – homes have fallen to a smaller degree.
However, Zoopla say wage inflation is driving improved affordability, rising by 7% over the last year. Housing affordability, on a house price to earnings basis, is reportedly set to improve by 9-10% over 2023 as prices register modest falls and average earnings increase.
Indeed, the UK house price to earnings ratio is forecast to be in line with the 20-year average at the end of 2023 at 6.3x.
Yet, in any case, Zoopla say mortgage rates need to fall below 5% to improve affordability and stimulate more home moves.
“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,” said Richard Donnell, Executive Director at Zoopla:
“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 added:
“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.”
Andy Sommerville, Director at Search Acumen, the property data and insight provider, said it is “unavoidable” that the ongoing macroeconomic dynamics will impact demand and pricing in the property market:
“This marks a significant recalibration of the market dynamics that prevailed in the decade preceding the pandemic. In the housing market, we are looking at a period of reduced market activity until house prices, real income, and borrowing costs come into better balance. In the commercial markets, we will see investors reassessing their portfolios, looking for sectors that are capable of outperforming all property benchmarks in the current conditions.”
